CNBC's Domm: Today's Agenda in the Markets

Stocks are struggling ahead of the opening as a selloff in the Treasury market pushed the yield on the 10-year above the key 5% level for the first time since last July. May sales results from chain stores are rolling in and merger activity continues to make headlines.

Five percent has been key in the minds of stock traders who fear higher rates will affect some of the leverage that's been helping create the liquidity driving the stock market. Yesterday, the Dow had its second down day in a row on jitters about inflation and rising rates. The index dropped 129 points or 1%, giving it the biggest one day drop since May 10 and its biggest two day drop since February. The Nasdaq dipped 24 points, or 0.9% and the S&P 500 was off 13 points or 0.9%.

Yesterday's "lower productivity (data) and the European rate hike fed on the fears we've had in the last few days," says our Bob Pisani from the NYSE. "We don't know how much higher rates are going to go. Even a little bit might bite into the liquidity that's been underpinning the stock market."

Pisani says traders fear the buyout boom could be crimped if rates rise too much and that is the topic of talk affecting the market. In fact, Merrill Lynch's Richard Bernstein wrote about that issue in a report yesterday, titled "PEs Rising. Rates Rising. Not a Good Combo for LBOs."

Bernstein concluded that there is no impact yet on leveraged deals, but he noted that stock investors have ignored the 50 basis point rise in the two- and 10-year rates in the last three months. "The S&P 500 PE ratio has expanded by about a point and half during the same three month period," he wrote.

"That being said, we should emphasize that our valuation models do not (yet?) show valuation extremes anywhere near the levels of 1987 or 1999. However, investors right now can't imagine how the LBO boom would end. Rising rates and rising equity valuations could do the trick," Bernstein says in the report.

MAY SALES MIXED Retailers are turning in a mixed performance this morning as they report May sales. Wal-mart sales were up 1.3% and were impacted by apparel sales. Our Margaret Brennan will report on the retailers and other consumer driven companies from the Piper Jaffray consumer conference today.

A WORLD EXCHANGE? Pisani is away from his perch at the NYSE today, and will be covering the Sandler O'Neill conference on exchanges for CNBC all day today.

CEOs from exchanges all over the world will be in attendance. "The whole story is all about consolidation," Pisani says, noting the flood of deals as exchanges race to find partners around the globe.

"What you're going to have in the next year is the first truly, Tran-geographic, pan-investment exchange. You're going to have an exchange that has platforms all over the world and trades commodities, equities and derivatives. This conference is all about the dance card," he said.

AROUND THE WORLD Trish Regan continues to report from the G8 today, as Russia's President Putin and President Bush meet face to face and the group grapples with climate change. Regan reports protestors are becoming more aggressive in their efforts to disrupt the meeting, and some are attempting to gain access by speed boat.