Risk happens fast and this could cause sellers to come out of hibernation across a variety of asset classes, not just Treasurys. Their painstakingly slow plan to reduce Treasury and MBS holdings by an initial $10 billion per month (starting in October) will continue to delay the very necessary repricing in domestic equities which have been the vast winner in all of the Fed’s quantitative easing efforts. An inverted yield curve certainly is a recipe for a recession but, that does not seem likely near term for the U.S. Treasury yield curve.

The Treasury market will most likely endure some “hunger pains” but, it also may incur some serious dizzy spells between now and the end of the year. As the Fed desperately attempts to move the U.S. dollar index higher, I believe they will continue their hawkish rhetoric this fall.

The 10-year note will most likely float back and test its previous resistance of 2.60 percent, while U.S. stocks will likely be a victim of circumstance and also come under selling pressure. An S&P500 level of 2350 (about 6 percent lower from here) is an attractive area for money managers sitting heavily in cash to consider starting initial strategic deployment. The Fed is betting on the fact that, in the event U.S. equities get even uglier, buyers will resurface in Treasurys to stop the rising yields and their scholastic balance sheet “diet” will be stabilized and be able to continue on its unprecedented course.

As Tom Brady just revealed in his new book “The TB12 Method,” drink a lot of water on this new Fed diet!

Commentary by Jeff Kilburg, the founder and CEO of KKM Financial, an alternative-investments firm based in Chicago. Follow him on Twitter @jeffkilburg.

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