Equity markets have powered to fresh highs while government bonds face their worst sell-off in over a year, creating a dangerous divergence that has caught the attention of major investors. The S&P 500 has climbed steadily since April's tech-driven rebound, with traders shrugging off geopolitical tensions and piling back into stocks.

Meanwhile, US Treasury yields have surged to levels not seen since late 2023 as investors price in persistent inflation from oil prices holding above $100 a barrel. The energy crunch stems from Iran's closure of the Strait of Hormuz, disrupting global supply chains and forcing Tehran to store crude on aging tankers in the Gulf.

Vincent Mortier, chief investment officer at Amundi, believes the disconnect cannot last. "We will see a correction — the question is more when than if," he told clients, pointing to the dramatic shift in market positioning over just six weeks. His warning reflects growing concern that equity valuations have outpaced economic fundamentals.

The bond market's bearish turn suggests investors expect central banks to maintain higher interest rates for longer, which could pressure stock valuations that have been floating on abundant liquidity. This divergence between asset classes often precedes market stress, making it a critical barometer for portfolio managers navigating uncertain terrain.