"She's going to say as little as possible about the future of Fed policy," said Diane Swonk, chief U.S. economist at Mesirow Financial."She's going to be out there, grilled like crazy, talking about the different tools the Fed has, but it's not in her interest to set the Fed on any pre-set course. She really is in a bit of a box. They want to hand off the transition to forward guidance. They think it might be more effective than the balance sheet but they're not all on board with it."

Swonk said some Fed members would like to pare back bond buying, which balloons the Fed balance sheet, and push out the zero rate policy on short term rates further into the future.

There has been some speculation in the bond market that Yellen will actually sound hawkish during the hearing. She is seen as a very dovish Fed official, aligned closely with Bernanke.

"There is a risk that she comes off as more hawkish than everyone thinks she is," said Ian Lyngen, senior Treasury strategist at CRT Capital. "The market's perception of her being one-sided will be challenged with the confirmation hearing, as she becomes a more vocal part of monetary policy. I think the takeaway will be that she is more balanced than she is currently viewed."

There is a group of Fed speakers in the coming week, but the Yellen hearing will be most important. While the bond market is closed Monday for Veteran's Day, traders will focus on three auctions of 3-year,10-year and 30-year Treasurys Tuesday through Thursday.



"Part of this (rate increase) is going to be a reflection of building accommodation for supply," said Lyngen, who said yields could retreat in the coming week. "This is typically the period of the year after the November refunding, where seasonals tend to be more supportive of the Treasury market."

Some traders also expect the rise in yields to be self-correcting, since the stock market and economy reacted negatively when they edged to 3 percent earlier in the fall.

What Else to Watch

The Nasdaq finished flat for the week at 3919, recovering 1.6 percent Friday, and the Russell was up 0.4 percent for the week, gaining 1.9 percent Friday. Both those indexes had been diverging, declining while the Dow and S&P rose and falling harder when they declined.

There has been a move into defensive names in recent sessions, but in Friday's rising market it was the sectors that benefit from an economic recovery that were driving gains – financials, materials and consumer discretionary, while utilities and telecommunications stocks were sold.

Traders will be watching those trends, since the selloff in the Russell and Nasdaq, which led the markets' gains, was viewed as a possible sign of a broader sell off.