IN the daily dance of the financial markets, it's plain to see who's leading and who's following right now. When bond yields jump, stock prices slump. As the yield on 10-year US Treasury notes has climbed past five percent to highs not seen since 2002, concern has spread that rising interest rates might disrupt the stock-market advance dating back to that same year.There are several plausible reasons why higher rates look like bad news for stocks. But all that is theory. In practice, does a bad year for bonds automatically mean trouble for stocks as well?

The short answer is no. In the last 15 years, according to my Bloomberg, the yield on the 10-year Treasury has risen by more than 10 percent four times. In three of those four years, the Standard & Poor's 500 Index of stocks posted gains averaging better than 20 percent.

A textbook case came in 1999, when the 10-year note's yield climbed 39 percent, to 6.4 percent from 4.6 percent. The S&P 500 ran up a 20 percent gain anyway as stocks neared the peak of a great bull market.

See also 2003, which gave us an 11 percent rise in the Treasury yield and a 26 percent gain in stocks. Or 1996, when the Treasury yield increased 15 percent and stocks were up 20 percent.

The lone exception to this pattern was 1994, when the 10-year note yield jumped 34 percent, to 7.8 percent from 5.8 percent. That time the S&P 500 declined 1.5 percent.

Suppose you had some way of knowing each year in advance whether interest rates were going to rise or fall. Applying lessons well learned in the 1970s and '80s, you pulled your money out of stocks in '94, '96, '99 and '03.

You would have missed out on market gains, not counting dividends, averaging 16 percent per year. That's a high price to pay in any money management plan, short term or long.

Now, none of this is to say that the worries raised by the recent rise in interest rates are frivolous. Increased costs of credit really could put a dent in corporate earnings growth.

They could also chill enthusiasm for company takeovers by private-equity investors and buybacks by companies of big chunks of their own shares. These deals are typically financed with borrowed money. A sustained rise in interest rates might serve to dry up the world-wide liquidity boom that has kept so many markets hopping in recent years, from commodities to junk bonds. To keep yourself awake some night, just imagine how a big move up in rates might play out in the derivatives market, where so many investors own a piece of other people's credit risk.

Not the sort of stuff to be taken lightly. Even so, the bullish argument for stocks — to which I still stubbornly subscribe — holds that this tale doesn't have to come to any such bad end.

With its rise from 4.4 percent in December to about 5.3 percent recently, the yield on the 10-year note is still pretty low in absolute terms. Over the last 20 years, it has averaged about 6.2 percent.

It spent much of the past few years at what amounted to artificially low levels. With so much liquidity sloshing around the world, investors large and small were willing to buy bonds at yields lower than seemed to be justified by economic circumstances.

Now, for whatever reason, this anomaly looks to be "normalising" — although, as Timothy Geithner, president of the Federal Reserve Bank of New York, observed this week: "It's hard to know what normal is in a world that's changed so much."

The markets have some recent experience with credit normalisation: the raising of the Federal Reserve's target interest rate on overnight bank loans from an abnormal one percent at mid-2004 to a presumably much more normal 5.25 percent at mid-2006 (and ever since). From mid-'04 through mid- '06, the S&P 500 climbed 11 percent a year, or 15 percent if you include dividends.

On that evidence, stocks ought to handle a normalisation in longer-term interest rates with aplomb. The crucial question is how far the rise in rates goes.

How will we know when rising bond rates threaten to become something more ominous? The stock market may be among the first to tell us.

In the recent era of abnormally low interest rates, stocks' volatility has also been unusually low. If those days are over, it stands to reason that market volatility may be ready to normalise too.

(Chet Currier is a Bloomberg News columnist. The opinions expressed are his own.)