Stock traders don't normally talk about bond auctions, but all this week the 10-year Treasury auction that will happen on Wednesday has been the main subject of conversation.
"It's been a long time since stock traders have cared about bond auctions," Matt Maley from Miller Tabak told me. "The number one issue for the stock market now is bond yields."
This belief is widely held on the Street: With the reopening story now largely priced into stocks, interest rates are the marginal mover of the markets.
You could smell the panic among stock traders as the 10-year yield moved from 1.1% to 1.5% in less than two weeks at the end of February, which caused tech stocks to tank. Some bond vigilantes predicted yields could move toward 2%.
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If further stock rallies depend on rates, have they peaked? The 10-year Treasury has taken several runs at breaking out over 1.6% and failed. That is giving some investors hope that the runup is over.
Much depends on the outcome of Wednesday's 10-year auction at 1 pm ET. Some stock bulls believe demand will be strong, particularly from overseas buyers like the Japanese, whose 10-year yield is at 0.1%.
Guy Lebas, chief fixed income strategist at Janney Capital Markets, said that foreign demand for U.S. Treasuries has and will remain strong.
"What matters is the pace of increases rather than the actual yields," he told me. "We had a pretty rapid increase in yields at the end of February and early March, and that caused a lot of indigestion. When prices decline like they have, more demand steps in and slows the process."
That includes foreign buyers.
"A large part of U.S. Treasuries are owned by overseas entities, it's roughly 40% of all Treasuries outstanding," he told me. "Many of those buyers hedge currency risk, so what they care about is the after-hedge yield. Right now you are getting 1.5% on the 10-year, and you are getting 20 basis points on the currency hedge, so that's 1.7%. That is a very attractive yield for foreign buyers. There is no place in the world where you can get 1.7% on a currency hedged basis."
That is music to the ears of stock bulls, who are also hopeful that one of the main worries for rising bond yields — inflation — will also quickly settle down.
"Whatever price increases we are seeing for commodities is because of pent up demand and because the supply chain is stressed out," Alec Young, chief investment officer at Tactical Alpha told me. "But whenever the equilibrium goes back in line, you will see prices go back down again. Price increases are due to the reopening, not long-term inflation, and the bond market has over-reacted."
Still, even Young believes the 10 year auction will be the primary mover of the market. "A lot of traders are likely to sit on their hands until the auction," Maley told me.
And if the auction keeps rates near the 1.5% level? That — for Alec Young — will be a sign it is much safer to go back into technology.
"Investors want to own tech," he told me. "There is no deep loyalty to most of the reopening names. No one wants to overown Carnival Cruise Lines, or United Airlines or even Chevron. They want tech."