JUST over a week ago we had a non-farm payroll number which blew away all analysts’ expectations. The reaction in the financial markets was sharp, with the dollar, bond yields and equities all shooting higher. While this was a rational response to good numbers, it wasn’t the reaction we have come to expect over the past nine months. Better data has resulted in a weakening dollar, with both equities and bonds heading higher.

The payrolls were such a surprise that a few days later Fed chairman Ben Bernanke underplayed their significance when he spoke to the Economic Club of Washington. But despite Bernanke again pledging to hold rates at an ultra low level for an extended period, there is a strong feeling that the non-farms were a game-changer – they may have finally put a floor under the dollar.

Friday’s retail sales saw a similar reaction, and this time the dollar effect was even more pronounced. The euro fell back through support at $1.4630 – last seen at the beginning of November. We’re now seeing bond yields continue to push higher, which means that the market is anticipating higher rates further along the curve even as central bankers remain wedded to low overnight rates. But the big question remains how healthy this actually is.

Rising yields may well be an indication that global recovery is under way. After all, the economic data has been showing an improvement, although much of this is in the “second derivative” – that is, things are getting worse but at a slower rate. Higher yields help keep a lid on inflation as economic growth picks up speed.

But yields also rise when investors are nervous, and with worries over sovereign debt currently in focus, there is plenty to be nervous about. One thing that can’t be forgotten is the link between yields on 30-year US Treasury bonds and mortgage rates.

If bond yields continue to rise, the pressure on US homeowners will intensify further. If rising rates upset a recovery in the US housing market, then a sustainable global recovery is far from assured.