Treasury yields’ rise stirs caution

NEW YORK – U.S. Treasury yields are creeping higher, threatening to undermine one of the key pillars of economic growth in recent years.

Yields are still low by historical standards, but if they continue to rise, watch out. The impact on everything from stocks to housing to car sales could be profound – and not in a good way.

Yields on 10-year Treasury notes rose this week to as high as 4.80 percent, a level not seen since June 2004, which drew a warning from David Rosenberg, Merrill Lynch & Co.’s North American economist.

“When rates back up, growth slows … quickly. Fully three-quarters of the time in the past five years when we endured a bond yield spasm like we have seen since mid-January, GDP (Gross Domestic Product) growth slowed the following quarter and by an average of one percentage point,” Rosenberg wrote in a note to investors.

Housing is the most vulnerable sector if long-term rates continue to rise. The housing boom was fueled largely by cheap money and is already showing signs of weakness.

Auto sales also could be at risk if finance rates rise, adding one more burden to debt-laden consumers.

While most of household debt is tied to a fixed interest rate, 25 percent of household debt is tied to a floating interest rate, according to Merrill Lynch. Rising rates could cost households $100 billion.