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Payrolls rose by 195,000 workers for a second month, the Labor Department reported today in Washington, exceeding the 165,000 gain projected by economists in a Bloomberg survey. The jobless rate stayed at 7.6 percent, close to a four-year low.

Hourly earnings in the year ended in June advanced by the most since July 2011, giving Americans already buoyed by higher home prices more reason to boost household spending, which accounts for 70 percent of the economy. Stocks climbed, while the yield on the Treasury 10-year note rose to the highest in almost two years on expectations the Federal Reserve will start trimming $85 billion in monthly bond purchases in September.

Market seems [and is] willing to trade higher. The dip seems to have been bought. The backtracking by the Fed after Bernanke’s interview seems to have inspired enough bullish buying to get the market higher. All is good again.

Until you look at Treasury yields. Big move. Now the question is can stocks continue higher with higher rates?

10yr

Today that answer seems to be yes. Will it remain a yes…and if so, to what yield rate?

The consensus on rates seems to be that it will be good for the banks. The banks have a large swap trade, which is definitely bad for banks, just how bad will have to wait to earning to see if the bad outweighs the good stuff.

Higher rates means that raising capital becomes more expensive, the market rate climbs back towards the natural rate, which will slow down any expansion that might have been planned. Which bodes what exactly for employment? Employment is a lagging indicator, so the capital [raise] and spend cycle is already complete?

The mixed message coming from the two markets will keep the uncertainty levels high. The conviction of buyers will likely be low which will keep prices and reversals quite active I suspect for a time yet.

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