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BEHIND THE MONEY: Stock Rally in Bond Market's Hands

BEHIND THE MONEY: Stock Rally in Bond Market's Hands

All eyes will be on the 5-year Treasury auction results released at 1 p.m. today. Recall that last week, a weak auction sent Treasury yields surging and the stock market reeling. (The down-move in Treasuries was later compounded by fears of the U.S. losing its AAA credit rating.)

Watch for the market to start to move ahead of the results as word of the success or failure of the auction leak out.

Clearly investors are worried about the appetite for Treasuries weakening, since so much of this comeback is riding on the government's continuing ability to spend. The fear is that higher yields could snuff out this stock market rally by making it more expensive for the government to borrow, as well as for consumers, whose mortgage rates are pegged to the 10-year Treasury. Also, higher yields could be foreshadowing a troublesome spike in inflation.

However, there is another side to this argument. In the past, higher yields signaled increasing economic activity. In fact, the S&P 500 and the yield on the 10-year Treasury have an 86 percent positive correlation since December 2006, according to John Kosar, director of research at Asbury Research and a guest on the Fast Money Half-Time show today.

Over the long-term, it's clearly up for debate, but the hair-trigger reaction lately to a spike in yields has been for stocks to trade down.

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