Stocks down, interest rates higher. The bond king/guru’s are currently wrong. Interest rates show no real sign of moving back down towards their lows. In theory, you sell the short end and buy the long end for an arbitrage on maturity.

Here is the problem. Many of the longer dated Treasuries are trading at premiums to their Par values, hence there is no arbitrage.

The trade only worked when the Federal Reserve was actively purchasing impaired assets, swapping them for Treasuries and buying back Treasuries in POMO.

Now with essentially the “taper” ending this trade, and only POMO at the short end, longer dated paper can certainly rise higher, viz, yields.

The question is where is the ceiling and what happens to stocks?

No-one has a good answer. This is one of those times that we’ll just have to wait to find out.