Higher US bond yields could impede economic recovery: ANALYSIS

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.

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.

"I do fall into the camp of people who worry what will happen when rates go up," said Tom Nelson, chief investment officer at New York-based Reich & Tang, a firm with nearly half of its $28 billion in assets under supervision in money market mutual funds.

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