For financial institutions, it's a major positive to have rates rise, and their stocks have been flying since Trump's election. The S&P financial sector was up 2 percent Monday, after an 11 percent gain last week. Savers will also be helped, as interest rates on Treasurys and money markets edge higher.
"Before the fair value was closer to 1.50 on the 10-year and now the fair value is 2.50 and we basically got to 2.30 overnight. We went from a world starving for yield and people chasing bond markets to very low rates, which was wrong," said Goncalves. "Now you could get upside of 25 basis points and you could get 25 basis points downside."
U.S. interest rates have been held down by Fed policy and sluggish U.S. growth, but they have also been distorted by super-low and negative yields, courtesy of central banks in Europe and Japan. Now, the U.S. Treasury market, like a once sleeping giant, is dragging world rates higher with it. Bond yields move inversely to bond prices.
Even the short end of the yield curve, which is tied closest to Fed policy, has seen a steep rise. The 2-year yield rose above 1 percent briefly on Monday and some bond market experts say it could easily reach 1.5 percent in the next year.
Goncalves said his forecast for the 10-year had been 2 percent next year, as he and many on Wall Street were basing their expectations on a Hillary Clinton victory and a status quo situation in Washington and in the markets.
But the "lower for longer" theme, where the Fed was expected to keep rates low for a very long time, has been smashed, and even Fed officials concede Trumponomics may force them to adjust their policy outlook if it sparks economic growth and inflation.
"The derivatives market is beginning to price in a more aggressive Fed. A few days before the election, investors learned that average hourly earnings rose by 2.8 percent year-over-year. This is the fastest in several years, and although one month a trend does not make, it is consistent with a tightening of the labor market, and rising core inflation pressures," wrote Marc Chandler, head of foreign exchange strategy at Brown Brothers Harriman.
Cabana said he now believes that the Fed's forecast for one hike this year and two next year may actually work out, as opposed to overly optimistic forecasts the Fed has repeatedly pared back. He said Bof A economists have pared back their growth forecast slightly to 1.9 percent for next year based on the uncertainty around a Trump presidency.
Some of the uncertainties that have worried the market revolve around Trump's plans for trade, and whether he could start a trade war with China and others.
"We do think all of this means the Fed will likely have to be more active. We are going to hear from Chair (Janet) Yellen this week. She is likely to reiterate a December hike is on the table, and any type of fiscal stimulus will be well received," said Cabana. Fed officials and central bankers globally have called for fiscal stimulus to prod growth, since they have come to the point where more monetary policy has become questionable in terms of its ability to stimulate growth.