The equity markets continue to respond to higher rates on the long end of the curve, but thankfully the Fed sees the entire curve is shifting upward. This would be considered a positive, as opposed to an inverted curve. So, with rates at levels not seen in a couple of years, but for a good reason (a bit of inflation finally coming into the system) why is everyone freaking out? The obsession with higher rates is just mind-boggling, but perhaps we can answer some questions about it here.
For years the Fed has been doing its best to rekindle some inflation. Remember those deflationary forces of evil? You recall Chair Bernanke and the FOMC fighting off those deflationary tailwinds that were holding back the economy. They tried with several QE programs and other tools to try and gain a bit of leverage, and finally with some fiscal policy and tax cuts in 2017 the Fed may have what they were looking for.
The Fed's action prior in raising the funds rate and their current pat is simply removing the generous accommodation that has been in place since the financial crisis. For better or worse, the Fed's mission was to stoke some inflation, get up to 2-2.5% and manage accordingly. Fortunately, the economy is on rather sturdy ground today, making it much easier to ease back and raise interest rates slowly and toward their target (around 3%).
As mentioned earlier the yield curve is upward sloping, modestly steep. So, as rates rise across the curve the bond market is not forcing the Fed's hand, rather it is really doing its job. A recognition by the bond market that 'yes, rates have to rise because the economy is solid and slight inflation is coming in' is a good sign.
The Fed is on a path to raise rates three times in 2018, with an option for a fourth if inflation starts to rise. But looking to other signs of higher inflation like gold, silver and a weak greenback - we just aren't seeing it yet. Long bond yields at 3% vs 2.5% (where they were a couple months ago) is still not great competition vs equities. If/when the economy turns south is when bonds will become more attractive. Yields might be much higher than current rates.
Let's just rejoice in that the Fed has a market condition to allow them to remove rates that are too low in an environment that will absorb them without too much emotion. Just what the Fed wanted.