Treasury yields have been falling, and yet stock prices remain near record highs. On the surface, this seems like conflicting attitudes toward risk. But a closer look at these markets reveals a much more consistent narrative.

Why it matters: Since March, long-term Treasury yields have been sliding, with the 10-year yield falling from 1.74% in late March to as low as 1.13% on Monday.

• Most market watchers agree this reflects an aversion to risk.

Driving the news: The spread of COVID variants has been troubling. And among other things, it risks disrupting economic growth.

• "I think we were pricing in the world going back to normal," Roberta Goss, co-head of the bank loan and CLO platform at Pretium, tells Axios. "But it's not 'normal.' It's not going to be normal for quite some time, and the path to normal is not linear."

Between the lines: While the major stock indexes are near record highs, the relative performance of certain categories of stocks reflects a shift toward more cautious positioning.

Flashback: In what's been dubbed the "reflation trade," traders bullish on the reopening of the economy had been showing a preference for stocks that are more sensitive to shorter-term bouts of growth — or cyclical growth.

• In this environment, small-cap stocks are preferred over large-cap stocks. Meanwhile, Big Tech stocks, which are defined by longer-term — or secular — growth fell out of favor.

What they’re saying: Capital Economics analyst Jonas Goltermann observed that for most of the second half of 2020 as Treasury yields were rising, the Russell 2000 index of U.S. small-cap stocks outperformed the large tech-heavy Nasdaq.

• This continued into spring 2021 until yields peaked and then turned lower — and the Russell 2000 started to lag the Nasdaq, a trend that’s lingered to this day.

The big picture: The major stock market indexes like the Dow and S&P 500 offer a limited view of what’s going on in the economy. Underlying these indexes are dozens of industries and thousands of companies that all have unique stories to tell.

The bottom line: Both the bond market and stock market reflect more cautious behavior by investors and traders.