If you think the Federal Reserve is happy with the recent rise in rates, then you're wrong. The Fed has to be quite uncomfortable with the velocity of this recent move, which has seen the 10-year yield climb up from 1.6 percent to 2.9 percent in just 3½ months. Meanwhile, one of the biggest misperceptions in the market today is that equities have properly digested this massive move.
So how does the Fed allow the market to acclimate to the rate rise, and keep the 10 year-yield suppressed specifically under 3 percent, even as the marginal efficacy of quantitative easing is being questioned? Simple: They minimally reduce (a.k.a. "taper") QE in September, to the tune of $10 billion to $15 billion.
(Read more: The 3 reasons everyone is dead wrong about bonds)
Why will that work?