It's been a while since the stock market hung on the outcome of a bond auction, but that's the case now that rates are rising and auctions don't promise to end smoothly.
"There was a point where you were watching the yen. There was a point where you were watching emerging markets, and now you're watching Treasurys for your cue," said Daniel Greenhaus, global market strategist at BTIG. "Right now that's where your lead is going to come from."
(Read More: O'Neill vs. Faber: Is China Liquidity Crunched?)
Stocks sailed to triple digit gains Tuesday, after durable goods, home sales data and consumer confidence were all better-than-expected. Also helping smooth the way for a move higher was a comment from a China central bank official who managed to soothe market fears on China's credit crunch. The Dow was up 100 at 14,760, and the S&P 500 was up 14 at 1588.
Bond yields started the day mixed to a bit lower but ended with gains, closing higher across the curve but still below Monday's highest levels. The Treasury's auction of $35 billion 2-year notes was a bit sloppy, coming with a yield of 0.43 percent, a two-year high.
"Obviously that didn't go as swimmingly as we anticipated. Now 2s are trading at about that 0.40 percent support level The auction came with a bit of a tail and there was a decent dealer take down," said Gabe Mann, Treasury strategist at RBS. "It wasn't a horrible auction. I sense the street was super long."
Mann said that has made the market a little concerned about the outcome of the 5-year auction, which is held at 1 p.m. Wednesday. Traders have been watching where rates will top out after rising since May 2, and accelerating after the Fed last week tipped that it may pare its bond buying program before the end of the year if economic data is strong enough.
(Read More: Junk Bonds Suddenly Don't Look So Good Anymore)
"Treasurys may be finding their footing," Mann said. "Pretty much everything is crossing into oversold conditions across the curve."
Besides the Treasury auction, there are weekly mortgage applications at 7 a.m. Traders are watching to see if mortgage applications for purchases fell, with rising mortgage rates. The 30-year mortgage rate have risen above 4 percent for the first time in a year, just several weeks ago.
"If they look like they fell off a cliff, then people will say rising yields are affecting housing," said Art Cashin, director of floor operations at UBS. Housing has been a strong part of the economic recovery.
But the market action itself may take a front seat. Greenhaus said he is still a buyer of equities and said the current correction could be about 7 to 9 percent.
"If you're going to take something out of today, I like the way you had your first real up day with a move higher in rates at these levels," he said, pointing to the recent volatile swings lower in stocks whenever rates have risen in recent sessions. "You had seven basis points to the upside, and you had an up day."
(Read More: Financial Stress Index Hits Scary Level)
"Am I buyer right now? The answer is yes," he said. Greenhaus said the stock market shouldn't be bothered by the 10-year yield at 2.60, since the primary drivers of rates, like inflation and growth, haven't changed.
There are a few earnings Wednesday, including General Mills and Monsanto before the bell. Bed Bath and Beyond and Paychex are reported after the close.
Minneapolis Fed President Narayana Kocherlakdota will be interviewed by CNBC's Steve Liesman at 8 a.m.
—By CNBC's Patti Domm.