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Rising bond yields are giving traders a headache

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Global bond yields are again rising, roiling stock markets in Europe and the United States. The U.S. 10-Year bond yield is at the highest levels since early December, as are German 10-year yields.

If you think the short end of the curve is controlled primarily by the Federal Reserve, the long end is traditionally controlled by expectations about growth and inflation. If you assume modest GDP growth of, say, 2.5 percent, and inflation remaining below the 2 percent Fed target, does that conform with this recent rise in bond yields, with the 10-year at 2.31 percent?

If you believe the market is moving on fundamentals, then the sudden rise seems to imply that the market is pricing in either stronger growth or stronger inflation.

Read MoreBond markets are 'unwinding extremes': Economist

The problem is, it's not clear that the rise is due to fundamental issues in the United States.

There's clearly some influence from European bonds. The yield spread has been decreasing between U.S. and German bonds, creating a relative value spread. Simply put, when the spread narrows there is less value in owning the higher-yielding U.S. debt, so you sell U.S. debt.

There's also liquidity issues: We don't know what the influence is from less inventory available for trade, which may be creating gaps.

There's also some interesting issues for insurers and pension companies. Remember, they need to match their assets with their liabilities.

The higher the yield gets, the more their liability increases, and they need access to assets that can offset those liabilities. If they're unable to access those assets, their pensions become underfunded. So a rise in yields without a corresponding rise in assets creates a problem.

At any rate, the focus will shift to the roughly $64 billion of Treasury debt this week in the form of 3-, 10- and 30-year auctions.

Read MoreAnalysts: Bond yields holding US stocks hostage

Elsewhere:

1) The S&P 500 has repeatedly failed to break out decisively to new highs. This is making many traders a bit crazy, but a sideways movement within a narrow range is not a bad thing in the environment. Lowry's, the oldest technical analysis service in the United States, said in a note to clients "the ability to consolidate gains by trading sideways is generally considered a sign of longer term strength."

More importantly, there has not been a notable surge in selling as we failed to break out, or on days when the markets were down, indicating that traders continued to hold stocks.

All of yield curve-steepening is leading to some speculation that regional banks will benefit; the SPDR Regional Banking ETF closed at its highest levels since March 2014.

And higher yields in developed markets attracts funds from emerging market currencies and stocks. TheEmerging Market ETF has been under pressure since the end of April, when U.S. and European yields began to rise.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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