Stocks have made a quick, stealthy U-turn, as investors shake off concerns about Syria and redirect focus on the Fed.
But traders will be watching a meeting Thursday between Secretary of State John Kerry and his counterpart Russian Foreign Minister Sergei Lavrov in Geneva to see if a diplomatic resolution, rather than a military strike, is the likelier outcome for Syria. The two are attending a hastily called meeting to discuss possible removal of chemical weapons controlled by the Syrian government.
"There's no geopolitical risk in Treasurys right now," said George Goncalves, Treasury strategist at Nomura Americas. "If there was a breakdown in communications, and we aren't going down the road of trying to be diplomatic, Treasurys would get a bid and stocks wouldn't like it."
There are just a few data points Thursday. Weekly jobless claims data and import prices are released at 8:30 a.m. ET, and the federal budget is at 2 p.m. The U.S. Treasury auctions $13 billion 30-year bonds at 1 p.m. The auction follows the well bid $21 billion reopened 10-year auction Wednesday, and also the takedown of a record $49 billion debt offering by Verizon. The Verizon deal, the largest corporate offering ever, was expanded because it was so oversubscribed and the order book on the deal rose above $100 billion.
The Verizon deal added to positive sentiment across markets. The Dow was up 135 at 15,326 and the S&P was up 5 at 1689. The Nasdaq, weighed down by a sell-off in Apple, was down four points at 3725. The S&P is up 2 percent for the week so far, and is about 1.2 percent from its all-time high.
"Equities have come out of their funk a bit. The S&P has broken through some resistance today at 1687," said MacNeil Curry, head of global technical strategy at Bank of America Merrill Lynch.
(Read more: Verizon prices record-breaking $49 billion bond deal)
Curry said the technical action was encouraging. "I was bearish for equities for some time…but the fact we took out the 1687 Fibonacci retracement, I went from bearish to neutral today." Fibonacci retracements, based on the numerical sequences of thirteenth century mathematician Leonardo Fibonacci, are ratios used to find potential levels for reversals on charts.
As for bonds, Curry said sentiment is too negative. "I think what's interesting as well is a lot of people thought this whole Verizon thing was going to push yields a lot higher and that's not happened. I think that just speaks to how over stretched this trend was to the downside," he said. He added that according to a metric of trend strength, the 5-year yield is very stretched and point lower. He has a target of 1.6/1.55 percent. The 5-year was yielding 1.70 percent late Wednesday.
"What it's (Verizon) saying is if you can bring a huge issue like this to market and there's no indigestion, it means there's a lot of liquidity which speaks to the Fed but also speaks to people's willingness to tap their cash reserve and put money out for a longer period of time," said Milton Ezrati, senior economist and market strategist at Lord Abbett. "It's a good deal for Verizon. They're paying a little more because of the size of the deal but they're not paying an exorbitant amount."
The Verizon bond sale was much larger than the second largest deal – Apple's $17 billion bond sale in April. Of the $49 billion, Verizon priced $11 billion 10-year notes at a yield of 5.19 percent, and $15 billion in 30-year bonds were priced to yield 6.559 percent.
"This big issue just reinforces the case that we can live with less of the Fed in the markets. That's why the spreads remain so favorable for lesser quality," Ezrati said. "It speaks to the fact that people are still a little concerned about taking risk but they're not afraid to buy higher quality stuff."
(Read more: Mad dash to debt as rate window starts to close)
The Fed meets Tuesday and Wednesday, and many strategists expect the Fed to announce it will begin paring back on its $85 billion monthly bond buying. Ahead of that meeting, Ezrati expects to see the markets exhibit some caution. "Any change is going to cause a rough patch. There will be caution so this rally we are having may slow down or reverse a little bit," he said.
Yields have been rising ahead of the Fed meeting, so many Treasury participants were surprised Wednesday when the yield fell into and after the 10-year auction. The auction cleared at a yield of 2.946 percent.
Ward McCarthy, chief financial economist at Jefferies, said a mysterious jump in the amount of direct bidding took down more of the auction than usual. Direct bidders are bidders who can go directly to the Treasury. "The direct bidders took down 29.6 percent of the auction. In re-openings since the beginning of the year, director bidders have taken down 21.2 percent," McCarthy said.
McCarthy said the mystery bidder or bidders identity is made known only to the Treasury, and that is not in the spirit of market transparency. "When you get unusual behavior in direct bids, it usually means someone else has a messy position to deal with then," said McCarthy.
"It could be anybody for any reason," he said. "…It could have been an associated hedge. Verizon was quite the distraction today…There were a lot of balls in the air but it seemed like there were a lot of people trying to catch those balls. The yield is still a highly desired commodity."
Goncalves said the 10-year auction and 30-year auction won't necessarily go the same way. "They're different animals. It (Verizon) does take some of the edge off the concern that supply can't clear, and the 30-year is the last ones of the week. In many ways, the Verizon deal competes more with the 30-year Treasury," he said.
What else to watch
New York Fed President William Dudley speaks in Paris at 9 a.m. on the topic of reform of over-the-counter derivatives.
The Securities and Exchange Commission meets with officials of exchanges and other self-regulatory organizations on the interruption in trading at Nasdaq.
—By CNBC's Patti Domm. Follow here on Twitter