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Rising Bond Yields Stoke Concerns Over Impact
Reuters | February 03, 2013 | 10:58 PM EST

A rough couple of months in the U.S. bond market has lifted interest rates off record lows and now could impede a slow economic recovery heavily dependent on cheap money to keep going.

While stocks have surged to near-record levels from five years ago, an accompanying rally in the $11.6 trillion U.S. Treasury debt market appears to have run out of steam and bond prices have dropped steadily since early December. That has pushed up bond yields, which move in the opposite direction to prices and they are now at the highest levels since last spring.

(Read More: Rising Bond Yields—This Is Just the Start )

Some of what's behind the sell-off can be seen as positive - greater investor confidence in riskier assets such as stocks, signs the European debt crisis is abating and a spate of U.S. economic indicators that point to more growth.

As bonds fall out of favor, however, credit-sensitive corners of the economy could start to feel the pinch. The housing market, car sales and business and public sector investment will be vulnerable as the cost of borrowing rises because all credit costs are ultimately tied to the Treasury market.

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