That wage report for August, which came out on Sept. 7, showed hourly wages grew on 2.9 percent on an annual basis. The 10-year yield has moved higher since then, since it implies inflation could be picking up — meaning the Fed could have to become more active.
"It's going to break higher, but not one of these 50 basis point moves where the market would take notice. We've had a stealth sell-off already and equities have held in," said George Goncalves, head of fixed income strategy at Nomura. Goncalves said if the yield reaches 3.128 percent, the May high, it could start heading to 3.25 percent.
"If we break the 3.13 level and the Fed is clearly still hiking, the next port of call is going to be 3.25. It's a matter of when, not if. The next key level is 3.50, and at that point, that's where the rubber meets the road for equities and credit, and things like that," he said. "That could slow it down."
Even though many strategists see the 10-year reaching 3.25 percent this year, they do not expect runaway yields. Much higher yields would spook the stock market, and strategists caution that a sell-off in stocks would create a flight-to-safety trade back into bonds. That would send yields lower, since they move inversely to price.
The U.S. 10-year also responds to moves in overseas markets, and comments form European Central Bank President Mario Draghi on Monday boosted German bund yields. Draghi's comment also reminded markets that central bankers around the world are following the Fed's move toward more normal rates, though at a much slower pace.
The Fed is expected to raise its fed funds target rate range to 2 to 2.25 percent Wednesday, and that is the rate that most directly impacts the shorter end of the curve, like the 2-year Treasury note. The 2-year touched a high of 2.84 percent earlier Tuesday, the highest level since June 2008.