“Suddenly, everyone’s worried about the bond market. The yield on the 10-year Treasury rose seven times in eight days. On Wednesday and Thursday, the yield got to 2.25%, which is the highest in two months. 

Of course, some of this needs to be put in context. Bond yields are hardly high; they’re just higher than where they were a few weeks ago, and that was pretty darn low. The 10-year yielded 3% in early 2014, and we’re still well below that. 

The 10-year yield gained 31 basis points in eight sessions. That’s enough to get people’s attention. This may sound like blasphemy, but I think some of the strength in bonds is due to a stronger economy. The evidence isn’t in just yet, but I suspect the bond market is already placing its bets.

GDP for Q1 was bad. This week’s trade data indicates that the revisions will be even worse. In fact, it’s very likely that Q1 was negative. But that data is already somewhat aged. The first quarter ended more than five weeks ago. The recent initial jobless claims have been quite strong. These are some of the lowest numbers we’ve seen in decades. 

We’re also seeing that commodity prices are on the rise. Oil, in fact, has been hot. On Wednesday, West Texas Intermediate got as high as $62.58 per barrel. That’s up $20 per barrel from the March low. (Anyone else remember in February when Citigroup said oil could fall to $20 per barrel? Yeah, me neither.)

The sour mood for bonds has been mirrored in the stock market by an increase in cyclical stocks. The chart below shows how the relative strength of Tech Stocks (XLK, black line) has closely followed the path of the 10-year Treasury yield (blue line). You can see it’s a pretty close fit.”

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