The dollar rose to more than three-month highs against a basket of currencies as the USA 10-year Treasury yield climbed towards the psychologically key 3 percent level. (One of the Fed's main objectives is keeping prices stable.) At the same time, higher commodity prices eat into profit margins for companies, which is bad for their stock prices.
It has benefited in recent weeks from concerns over the US-China trade dispute, sanctions on Russian Federation and unrest in the Middle East, but has been kept in check by the prospect of further interest rate hikes from the Federal Reserve.
There's another reason stocks react to the bond market.
Gold prices also came under downward pressure from an improvement in the geopolitical environment, with the U.S. Treasury Secretary cautiously optimistic on his negotiations with China, North Korea freezing its nuclear testing, and Washington extending its deadline for sanctions against Russia's Rusal, said OCBC analyst Barnabas Gan.
The most widely watched bond rate in the world just hit a milestone.
But just as importantly, higher bond yields offer a safer alternative for generating income, something largely lacking through years of rock-bottom rates after the financial crisis.
"As the Goldilocks market environment draws to a close, investor interest in gold has picked up", said TS Lombard in a note, referring to an economy that is not so hot that it causes inflation, and not so cold that it causes a recession. A rise in interest rates might kill a lot of them all at once. It's more technical, but it explains some of those swift "corrections" that arise even in the midst of a strong bull market.
Having flirted with the 3% level on Monday, the 10 year Treasury has broken through over the past 24 hours and now sits at 3.03%. The rise in the nominal rate of interest in both the 5-year and the 10-year securities were divided between factors impacting the "real rate of interest" and factors impacting the expected rate of inflation. When rates go up in the present, a future dollar is worth less.
Mr. Kruger argues that the rise in rates is not a result of investor belief that the economy will be growing faster. Investors price a company's stock as the value of all its future cash flows discounted back to the present. Larry Hatheway, chief economist and head of investment solutions at GAM Investments said that rates are rising in a global fashion. That will probably lead to even higher rates on longer-term Treasuries.
Gold prices are trading sharply lower early Wednesday and the market has almost erased all of yesterday's gains. The pros were out making short-term trades, as they hung on every change in the Fed's public pronouncements.
Matt Maley, an equity strategist at Miller Tabak & Co., also says staggering levels of investor leverage pose a risk.
Between February 15 and March 29, the nominal interest rates dropped modestly and both components of the nominal rates also fell modestly. Simple economics are at play here; when there's an excess of supply, and investors are expecting the Treasury to set a record in sales, you have to sweeten the pot to get people to buy.