What a Week: Bond-Bound

As the markets soared to new heights in April and May, the mantra among many market participants was, "I'm looking to buy a 3% to 5% dip."

That dip came fast and furious this week, amid rising Treasury yields and "sudden" concerns about inflation and the potential for Federal Reserve rate hikes. In response, major averages suffered a three-day swoon that chopped about 400 points, or 2.9%, off the Dow Jones Industrial Average, 49 points, or 3.2%, off the S&P 500, and about 77 points, or 2.9%, from the Nasdaq Composite.

The selling culminated with Thursday's near 200-point Dow drop and, true to their word, many managers did step into the resulting breach on Friday. The Dow jumped 157.66 points, or 1.2%, to 13,424, the S&P added 1.1% to 1508 and the Nasdaq jumped 1.3% to 2574.

Friday's gains were aided by better-than-feared results from National Semiconductor (NSM Quote), which gave other chip stocks a boost; speculation of a possible takeover of U.S. Steel (X Quote); news of a Tyco (TYC Quote) corporate restructuring; and strong global sales at McDonald's (MCD Quote).

But the real trigger for Friday's rally was the same as the catalyst for the prior selling: action in the Treasury market.

After touching 5.25% early Friday, the yield on the benchmark 10-year Treasury retreated to 5.12%, quelling fears of rising yields -- for one afternoon at least -- and paving the way for the stock market's rebound, which pared the weekly losses for major averages.

For the week, the Dow lost 1.8%, the S&P shed 1.9% and the Nasdaq fell 1.5%, the worst weekly performance since the late-February swoon.