Australian Commonwealth Government 10-year bond yields rose 12 basis points to 3.44 per cent following a similar move in US Treasury bonds during the Australia Day long weekend.
At 11.38am AEDT, the benchmark S&P/ASX 200 was up 0.8 per cent at 4871.6 after touching 4874.5, its highest level since April 2013.
Health-care stocks, banks and telcos led the charge, with CSL, Commonwealth Bank of Australia and Telstra up 1.1 per cent to 2.8 per cent following strong gains in their share prices last year.
Among stocks that fell were insurers including Suncorp, IAG and QBE, which dropped 1.8 per cent to 3.4 per cent after Cyclone Oswald pummelled the eastern seaboard over the weekend. BHP Billiton, Rio Tinto and Newcrest Mining slipped 0.1 per cent to 2 per cent after commodity prices weakened overnight.
Traders cited a global theme of investors switching from bonds to equities in response to an easing of concern over the European debt crisis and global economic growth. But they expressed the view that the market appeared overbought to some investors and thus vulnerable to downside from the February corporate reporting season.
"The upward move in fixed-income yields is definitely confirmation of a switch from fixed-income back into the equity market," said BBY institutional trader Anson Rosewall. "This year has seen a panic back into the equity market, with a lot of fund managers fearing they will miss out on further gains."
However, with the S&P/ASX 200's daily relative-strength index - a market momentum indicator - at a record high, BBY's Mr Rosewall cautioned that the Australian sharemarket could be prone to a pullback during the domestic reporting season next month.
The market was waiting on the outcome of the US Federal Reserve Board's two-day meeting on Thursday, along with US non-farm payrolls data on Friday, as well as results from a host of US companies reporting earnings this week.