"The great fear here is that if people truly become convinced that the Fed is going to change course, then everyone's going to race to get out of the bond market and do something different," said Cashin. "And what point do yields go high enough to begin to be counter-productive?"
Single-family home prices rose in March, according to the S&P/Case Shiller composite index of 20 metropolitan areas, logging their best annual gain in nearly seven years.
Most homebuilders traded higher, led by Beazer and DR Horton. The U.S. Home Construction ETF is up nearly 20 percent this year. Housing-related stocks have nearly quadrupled since their March 2009 low, but they're still about 30 percent below the July 2005 peak.
(Read More: Home Builders Ride Recovery Wave)
Also on the economic front, consumer confidence strengthened in May to the highest level since February 2008, according to the Conference Board.
(Read More: A Too-Strong US Economy? Why Everyone's Watching)
Meanwhile, both the Bank of Japan and the European Central Bank reaffirmed that their policies would remain in place. On Monday, ECB Executive Board member Joerg Asmussen said the policy would stay as long as necessary. On Tuesday, BOJ board member Ryuzo Miyao said it was vital to keep long- and short-term interest rates stable.
"I think it's a sigh of relief coming out of Tokyo," said Cashin of the session's rally. "[Japan's] had some wild action over the last few sessions and people were beginning to worry that perhaps there was kickback to what Mr. Abe and his team were trying to get done. The yields there were rising very sharply so people were worried that things were coming apart but instead, things have calmed down and that made Europe feel better."
