Last week we witnessed an anomoly in the Financial Markets. Stocks went "down" and Bonds also went "down" (yields went up). These are nearly contradictory movements. Traditionally as money flees "from" equities (Stocks) it flees "to" Bonds, increasing Bond prices and simultaneously reducing yields. There were global events (New Zeland, et al.) in the financial markets that were probably the cause of this anomoly, but I don't think it is a sustainable anomoly.
This week we should see either a correction in the Stock Market (rising) causing Bonds to be less desirable and a sell-off in Bonds will drive yields (interest rates up). If the Stock market continues last week's decline, investors should flee to Bonds causing Bond prices to rise and therefore yields (interest rates) to go down.
The Treasury's auction of 10-Year Bonds tomorrow (Tuesday, June 12th) should give some indication for the market's movement direction. High demand for Bonds will result in lower yields and lower interest rates. Low demand for Bonds will continue to drive yields and interest rates up.
It has to go one way or the other!
It also appears that while the long-term interest rates will be affected by the volitility of the Bond Market, short term rates will most certainly continue to increase as pressure on the Fed's committement to curtail inflation will result in unchanged or increased Federal Funds Rates at the next FOMC meeting, or certainly by August.
This should be a telling week.