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Stocks 'whistling' past bond yields, ahead of jobs

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Weekly jobless claims and productivity and costs data are expected Thursday, but market focus may remain on the wild moves in the bond market.

The rout that took the U.S. 10-year yield to its highest level since November continued Thursday. Treasurys followed the lead of the breakaway German bund. The U.S. 10-year yield was at 2.38 percent Thursday morning. The 10-year yield bund rose above 0.9 percent.

"They both basically hit a 7-month high at the same time, and I don't think it was a coincidence but it was interesting to see stocks rally so much," said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

This is stirring volatility in bonds

Stocks futures were lower Thursday but ended higher Wednesday on the prospects of a deal between Greece and its creditors and on encouraging news on the economy. The S&P 500 rose 4 to 2114.

U.S. trade data Wednesday included a surprise increase in exports, and the Fed's beige book showed economic expansion in April, albeit uneven.

Frederick said Wednesday's rate rise was not a factor so much for stocks, but the lower dollar helped lend support to equities. The euro rose to $1.12 on optimism about Greece and also after comments from European Central Bank President Mario Draghi. Bund yields also rose after Draghi said the ECB sees no reason to adjust monetary policy due to the recent rise in rates.

"He didn't give any sense that if yields keep rising, they might push back," said John Briggs, head of strategy at RBS. "He basically said volatility is part of this process." Briggs said if the U.S.10-year breaks through 2.40 percent, it's next level may well be 2.60 percent.

Some strategists said they expect continued volatility but a topping out in rates soon. Nonetheless, bond players watched the big move higher in yields that would no doubt reverse course if the jobs report disappoints.

Peter Boockvar, chief market analyst at Lindsey Group, said the move in yields was a concern. "It wasn't in Draghi's play book to see the 10-year German bund yield at the highest level since November. This shouldn't be ignored. There's a major trend change going on in the markets. Stock investors don't seem to care," he said. "The stock market is whistling past this rise in interest rates, unperturbed by anything. If there's anything that's kryptonite to the stock market, it's higher interest rates and I'm not sure why they're not responding."

Frederick said he expects another solid report on jobless claims, expected at 279,000, down slightly from last week's 282,000. He is also watching labor costs for any signs of wage inflation. But overseas news will probably have more impact on the stock market.

Read MoreBond yields scream higher, give eerie glimpse of future

"The goings on with Greece is probably going to push the market again tomorrow," he said. Greece officials have been negotiating ahead of Friday, when a payment is due to the IMF.

Frederick said stocks could be quiet Thursday, ahead of Friday's May employment report. There are 225,000 nonfarm payrolls expected and an unchanged unemployment rate of 5.4 percent.

"For the market to do well, they're going to have to hit the targets," said Frederick. A miss in nonfarm payrolls on the downside would signal a too weak economy, and a big beat would mean the Fed could be on the move to raise rates sooner than expected.

"All things point to a good number Friday," said Deutsche Bank chief U.S. economist Jospeh LaVorgna. He noted claims data has been stronger, and there was a five percent increase in tax receipts in May.

LaVorgna expects 275,000 nonfarm payrolls and a drop in the unemployment rate to 5.3 percent.

Besides the data, there are also earnings expected from JM Smuckers, Michaels Cos, Joy Global, Lands' End, Verifone, Diamond Foods, Cooper Cos and Ciena.