Back from the brink, but not far

Investors have basked for months in a powerful stock and corporate credit market rally, but the glow may fade as unprecedented measures to kick-start flagging economies mean near-zero inflation and benchmark interest rates won't last forever. A surge in bond yields in the United States and elsewhere portends a sustained period of higher interest rates, boosting the cost of capital for corporate and consumer America. Rising U.S. Treasury yields, with the yield on the 10-year note this week nearing 4.0 percent, have driven mortgage rates back up. That has threatened to kill a refinancing boom that has helped preserve the still-fragile health of recession-weary households and the banks that lend to them, at a time when credit losses show no sign of leveling off and the nation's unemployment rate races toward double-digits. The rise in bond yields and mortgage rates may also act to check the huge recent rally in global stock markets of the past three months, with the Federal Reserve trying to end an 18-month recession and yet not spur inflation.

Read the whole story at Reuters here...