Now, we know that the bond market takes its cues from many people and many countries and not just the Fed. But we are having a day right now where rates are going slightly higher on this positive news and the stock market isn't being hammered. Maybe this is the way of the world: a lurch toward normalization in the face of data that is undeniably positive. (If you really want to dispute that, I am not going there. Sometimes good news is good news. ) The key to this market going higher is when good data don't drive the market down because it means the Fed is out of step with reality.
This morning, when I interviewed Professor Robert Shiller about the Case-Shiller index, I asked about raising the fed funds rate and it wasn't like he blanched. Instead, he agreed that this is the kind of number that could warrant that type of action. So why buy bonds if that's the case? Why should the Fed play the role of the Dutch boy with the dike? Now, we can't have a straight line back up. Bonds are getting hit too hard for that. And I imagine at some point, if the bonds stay this weak, we are not going to be able to ignore them and sellers will hit the tape. But it is nice to see, for a moment, that rates could go up and it didn't bring out a horde of selling. I think that's the market getting used to strong data, data that should take the 10-year to 3%, and it can't rally until we get a bond rally on strong news, which isn't too much to hope for after this selloff, believe me.