Why Treasury yields jumped and stock prices flopped.

I've heard and read some silly follies about why US Treasury yields jumped while stocks dropped last week after the Fed announced that they expected to ease QE later this year.

John Boehner provided the most bone-headed commentary, suggesting that it had to do with US overspending.

Boehner's assertion is ridiculous because, as I noted last week, we have actually lowered our federal debt by slower spending growth with higher tax revenues, such that hitting the debt ceiling has been put off for several months.  Further, as the CBO noted previously, the deficit continues to rapidly shrink, which means that we could reach a balanced budget soon, simply by doing nothing but passing budget continuing resolutions.

Others suggested that the markets feared that slowing of QE would result in lower economic growth, or even a reversion to recession.

If the markets really feared a slowdown, it would push yields down even further, not higher -- a matter of a long history of cause-effect -- regardless of the direction of the stock market, but usually aligned to drops in the prices of stocks.  Since the yields shot up, it means that people were dumping their bonds into other resources.

What else happened?

Stock prices fell around the world, not just in the US; besides US Treasuries, all levels of bond prices fell around the world, including German bonds, municipal bonds and corporate bonds (and of course, all those bond funds); commodities all fell, including gold, platinum and oil.  Even TIPS have suddenly flipped to positive yields -- something that hasn't happened in nearly 1 1/2 years.

But there was one notable exception to rising yields: 1 month T-bills.

Reading the signals correctly, investors do not expect runaway inflation or economic growth.  They are not expecting the economy to shrink, but they're also unsure about the effects of announcing ahead of time, that QE might end, except that big hedge bonds just know that they're in trouble if they do not move out of bonds ahead of the end of QE.

So... naturally many investors have sought temporary quarters in the short-term safety of 1 month T-bills.  And that's the answer as to why Treasury yields jumped and stock market prices dropped.