U.S. stock ETFs rallied Monday and Treasury bonds fell sharply on fiscal cliff deal hopes and after noted hedge fund manager David Tepper said equities look cheap compared to “rich” bonds.

The iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) tumbled 1.5% on Monday as 10-year yields touched 1.8%, the highest level since October. Bond prices and yields move in opposite directions.

The latest jump in yields has brought back lingering speculation that interest rates could finally begin to rise meaningfully.

TLT, the Treasury fund, has dropped to an important technical level. The ETF is testing the 200-day moving average as well as a rising support line.

Also, the recent drop in the 10-year Treasury note has pushed its yield back above its 200-day moving average, according to Bespoke Investment Group.  The last two times the 10-year yield has pushed above its 200-day, it has marked a short-term top, or short-term bottom in terms of bond prices. “Are we due for another pullback in Treasury yields or will this bounce continue through the end of the year?” it said.

Fed bond buying

Of course, the Federal Reserve will continue to use its considerable firepower to help keep rates low in a bid to stimulate the economy.

“But as we head into 2013 and investors look to position portfolios, many are asking whether next year might be the year when interest rates begin to rise. After all, the Fed doesn’t actually set interest rates; rather it tries to influence them through its monetary policy,” said Matt Tucker, head of fixed income strategy at iShares.

There are several key trends keeping rates low, he said. They include a slow U.S. economy, benign inflation, demand for safe havens amid the European debt crisis and macro uncertainty, and continued Treasury buying by the Fed and other central banks. [Bond ETFs: Will Interests Rates Rise in 2013?]

“The bottom line is that as we head into 2013, we are unlikely to see a significant increase in rates, at least in the near term. The factors that kept interest rates low throughout 2012 appear to be very much in place as the clock ticks down to the New Year,” Tucker said.

Bond bull market

Still, if rates do rise meaningfully, many investors who have piled into bonds the past couple years would get hurt.