If the markets are to enjoy the robust, secular bullishness that most media pundits talk about, now would be a great time to prove it. But instead of answering questions, the equities sector only seems to be asking more.

As the first quarter earnings season gets underway, the Dow Jones has failed to keep pace with individual outperformers. It closed Monday down slightly from the Friday session, and then Tuesday saw a dramatic valuation erosion. The benchmark index lost nearly 2% as investors lost confidence in the broader recovery story.

I explained some of the reasoning behind the disappointing performance in the markets prior to the volatility. On multiple occasions at Crush The Street, I warned investors not to get too distracted with the equities sector, or even cryptocurrencies. A primary cause for concern was the bond market.

To quickly summarize, the benchmark 10-year Treasury yield jumped up to 3% yesterday, a multi-year record high. The last time we saw the key interest rate at these levels was back in late 2013, early 2014. However, it was only a blip as yields could not sustain themselves.

At the time, the risk-reward balance favored equities, and given former President Obama’s penchant for quantitative easing, he allowed the Federal Reserve to do its thing with nary a word. Such dynamics pushed investors further into equities, and away from the bond market.

Now, the situation is trickier. As the 10-year yield curve jumped to its present level, it did so at an accelerated pace relative to the 30-year curve. The end result is that there’s only a 6% premium for electing the 30-year note, which has greater time risk holding to maturity.

Previously, I mentioned that this indicates a lack of longer-term trust towards the markets and the broader economic recovery. But another point to consider is that as the 10-year yield curve rises, more investors are willing to take a nearer-term bet on the bond market.

And why not? At this rate, a great many investors are losing patience with the Dow Jones. They view equities as a sector on the precipice of a corrective phase. Instead, they can elect the bond market to keep their portfolio moving. Sure, it’s not going to generate the returns seen in equities over the past few years, but on the flipside, they will at least make virtually guaranteed profits.

If more folks adopt this line of thinking, we can expect further pressure on the Dow Jones, while also boosting benchmark interest rates. This could potentially create a self-fulfilling prophesy, as waves of investors opt out of equities.

Bottom line: continue to watch the bond market. That’s where the action is!