Rising Rates a Potential "Shock to the System" -- But Don't Sweat 4%, Jon Najarian Says

Many observers have cited rising Treasury yields as a big threat to the stock market rally, if not the future of America's ability to finance its deficits. But neither is a clear and present danger, says Jon Najarian, co-founder of TradeMONSTER.com.

"I'm not as worried about 4% [Treasury yields] as I am about 4.5% and 5% because I think that's where we're going -- but not in the short-term," Najarian says.

If and when Treasury yields exceed 4.5%, Najarian believes it could pose a threat to the stock market rally and potentially crimp the economic recovery.

But, for now, the fact yields are rising is a "good sign" and a reflection of the recovery, he says, suggesting yields are rising because "demand for money is going up," both at the corporate and consumer level. In other words, investors are coming out of their bunkers and demand for the "safety" of Treasuries is lower, resulting in higher yields.

Najarian dismisses the idea global investors are "shunning U.S. debt," noting the relative stability of the U.S. vs. Europe's so-called PIIGS, as well as higher debt-to-GDP levels in the U.K. and Japan.

Looking forward, the big risk for stocks is when the Federal Reserve decides to address the "disconnect" between the fed funds rate and the real economy, Najarian says. "When they move they might do a couple of half-point chunks to catch up; that will be the shock to the system."

Then again, maybe Monday's dovish front-page article in The Wall Street Journal and San Francisco Fed President Janet Yellen being President Obama's choice for Fed Vice Chair are signs the Fed will be content to leave rates at zero even longer than currently expected. If so, the stock market might continue to sail along unless and until the "bond vigilantes" make a much bigger comeback than indicated by a 4% yield on the 10-year.