The most glaring aspect about the current market is how the rally in equities has failed to shake out the holders of Treasuries and other low-yielding assets parked in ultra-safe CDs, money markets and government-backed securities. Even with Fed Chair Ben Bernanke giving the bond mavens a wink and a nod that he’s joining the “glass half full” camp for the economy, there continues to be a large percentage of investors who have little confidence and/or trust in taking on risk in stocks — even dividend-paying stocks.

Yields on Treasuries and the other asset classes noted above still hover near their multi-year lows. As they say in mission-critical situations, “Something has to give.” I simply don’t see the rationale for taking 30 years of risk for a 3.2% return, especially when the current Federal budget deficit is ballooning by $100 billion per month. I’d much rather own AAA-rated debt issued by Berkshire Hathaway (NYSE:BRK.A, BRK.B), Johnson & Johnson (NYSE:JNJ) or Procter & Gamble (NYSE:PG), where those balance sheets are as good as gold.

Something has to give, and I think it’ll be Treasury bond yields moving higher by the end of the year.

Assuming I’m right and the stock market holds and builds on its first-quarter gains, there will be a rotation out of bonds and into stocks that will rival the Moses-led exodus out of Egypt. If any decent portion of those trillions of dollars is dedicated to equities, then the notion of the S&P 500 rallying to 1,450-1,500 is very possible.

The fly in the ointment remains the Iranian situation and whether a military engagement can be averted, as well as if a larger credit event than that of Greece emerges, setting back the progress made in the eurozone into a heightened state of caution where there’s another massive flight to quality.

The first situation has more of a chance of happening than the latter, and it probably explains to some extent why bond yields are persistently low. Our track record in Iraq and Afghanistan is shaky at best, and Iran and Syria have the support of Russia and Vladimir Putin.

But at the end of day, either of these situations won’t curtail the global economic recovery that’s under way, outside of causing a temporary spike in oil prices — and a good dose of that risk premium already is priced in.

I view the biggest risk to the stock market as the looming battle over how to deal with the Federal budget deficit, which won’t be tackled until after the fall elections.