It was the moment bond bears had been waiting for. Yields on long-term Treasury paper rallied to multiyear highs in the first week of October, as a selloff in the bond market deepened, thanks to strong economic data and a more hawkish tone from the Federal Reserve.

Investors were reacting to several key indicators that the Fed’s policy normalization is far from done. A private payrolls report from ADP indicated the labor market is close to full employment, triggering concerns that inflation may rise, and interest rates would have to run with it.

“We’ve been of the opinion for some time that the market has been quite complacent about the impact of monetary policy tightening,” said Zachary Squire, chief investment officer and co-founder at Tekmerion Capital Management, a systematic global macro hedge fund. “Whatever was happening on the short end that the Fed controlled, it wasn’t flowing to long end rates and the equity market certainly wasn’t paying any attention,” he said. “That all started to change this month.”

The benchmark 10-year Treasury yield surged to a seven-year high of 3.18% on October 4, its biggest one day jump since Donald Trump won the U.S. presidential election in November 2016, when investors dumped bonds following public remarks from Fed Chair Jerome Powell that interest rates are a “long way from neutral.” The 30-year note rose to a four-year high of 3.35%.

Momentum had been building since late September in anticipation of a third rate hike, but movements in bond yields were relatively muted even as Treasury short bets reached record highs. The difference between net short and net long positions for 10-year Treasury futures was over 750,000 contracts in September, according to data from the Commodity Futures Trading Commission.

“That trend of increasing short-term rates at a steady pace has been going on for a while,” said Squire. “Rates have been marching forward at 25bps every three months or so.”

Tekmerion is among a host of macro managers that have had long-held views on bond yields rising as central banks around the globe withdraw market liquidity. Element Capital Management and Tudor Investment Corp. have both made money on the trade.

Jeffery Talpin’s $17.5 billion fund was up 25% through September, according to a person familiar with the firm. Most of the fund’s September gains were attributable to bets on rising interest rates. Paul Tudor Jones’ $7 billion fund posted gains of 9% for the first nine months of the year in its flagship fund. Tekmerion is up 1% through mid-October, according to a source familiar with the firm.

While bond bears were celebrating, U.S. equities took a beating in October, which is historically known to be a bad month for stocks.

The steep rise in Treasury yields sparked a week-long selloff in stocks, led by large-cap technology companies, which extended across all major indices. The S&P 500 suffered its largest one-day drop in eight months and the Nasdaq Composite Index dipped into correction territory, echoing events from earlier in the year.

The stock market plummeted in February as volatility came back with a vengeance amid another inflation scare and rising bond yields. The Dow Jones and S&P 500 declined for the first time in 10 months, delivering their worst performance in two years.

The October selloff impacted several of the stock market’s leading companies – Facebook, Amazon, Netflix and Google – collectively known as FANG stocks. The group suffered their largest decline in six years as investors rushed for the exit to sectors with more attractive valuations.

Said Haidar, head of the $428 million Haidar Capital Management, said there was a “mass rotation out of momentum stocks to buying stocks that had been doing poorly on a momentum basis.”

The bleed in technology stocks is problematic for global equity hedge funds that have made FANGs a staple in their investment books. Appaloosa Management, Coatue Management and Viking Global Investors are among a list of managers who invested heavily in the burgeoning industry, and have been rewarded thus far. The Absolute Return Technology Index is the best performing this year, gaining 18.03% through September.

Philippe Laffont’s $9.1 billion firm is already seeing an impact on performance with Coatue suffering steep losses in the third quarter. The firm declined by 7% in its main strategy, giving back early-year gains.

Haidar thinks there is more pain on the way. “Our assessment is that there’s a lot of unwind happening in the markets,” he said. “If you look at the last two days…it wasn’t just stocks selling off, it was the best sectors…The market leaders are reasserting control, but maybe the general selling is still going down. It’s a painful episode.”

The negative correlation between equities and treasuries isn’t always true, according to Squire. When the economy is recovering, higher yields will have a smaller impact on valuations because inflation is low. But with growth at its peak, the Fed will continue tightening short-term rates.

“You have the added pressure from the short end of the yield curve putting a floor, almost, on Treasury bond yields,” he said. “In this sort of environment, that doesn’t sound too good for equities.”

Managers now have to weigh whether the recent bond sell off is just a blip, or part of a bigger reversal.

Some managers pared back their bets against U.S. Treasury bonds after the initial selloff. CFTC data shows the difference between net short and net long positions for 10-year Treasury futures declined to approximately 622,000 contracts for the week ending October 9. Still, the consensus among managers appears to be that interest rates will continue to rise.

Haidar said he is bullish on the long end of the curve and short the front end of the U.S. Treasury market, calling himself a “flattener.” In other words, Haidar thinks the difference between short- and long-term yields will decrease.

“Whether the curve flattens or steepens, the most consistent thing is the front end will likely keep selling off because the Fed will keep raising rates,” he said.

In a weekly fixed income note, Goldman Sachs Asset Management said it had “used the recent selloff in US rates as an opportunity to scale back our front-end underweight exposure.” GSAM expects the long end of the yield curve to “benefit from firm demand from the pension community.”

GSAM wrote it is “broadly neutral” safe-haven currencies like the dollar. “We are positioned for tighter financial conditions in the US relative to Europe. This involves relative value views whereby we are underweight US rates and overweight the dollar,” the firm wrote.

Hedge funds shorting Treasuries tend to be bullish on the U.S. dollar because the two typically rise simultaneously.

“The combination of withdrawing liquidity in dollars and just strong general conditions in the U.S. is going to be good news for the U.S. dollar,” said Squire.

By mid-October, the 10-year Treasury bond was yielding 3.16%, down from its high of 3.23% on October 5, in what seemed to be a flight-to-safety following a particularly brutal selloff in equities.

But the reaction of the Treasury market to potential changes in the equity market is difficult to predict, according to Squire. “It’s not entirely obvious that a correction in the equity market is going to lead to a major fall in bond yields,” he said.

Haidar said de-risking could lead to a bond rally but the market hasn’t seen any movement in that direction yet.

“A lot of funds piled into equities on a yearend rally idea and it’s reversed a little bit,” he said. “If you look, bonds rallied back a little bit on the selloffs…but no one has flinched yet. We’re going ahead with a 5% or 6% correction, but no one is flinching. As soon as stocks stabilize, bonds will probably move higher in yields.”

Squire predicts that 10-year Treasury notes could rise to a base case of 3.3% or bear case of 3.6%, a year from now. “The big picture trend in yields, I would say, is from here upwards, but it won’t be a straight line.”

The market move – Rising bond yields put pressure on stocks on Absolute Return.