So much for the housing slump of 2006.

Mortgage rates rose to a four-year high and inventory of unsold homes is at the highest level in a decade. That might be about as bad as it gets if the bond market – traditionally the most sensitive barometer of economic distress – is any indication.

Since April 1, the debt obligations of D.R. Horton and Pulte Homes, the two biggest American homebuilders, have appreciated as much as 0.64% in value, outperforming U.S. Treasuries, corporate bonds, and mortgage-backed securities, and have scared away at least a few of the housing bears.

“The credit markets have been very useful guides to industry prospects,” Richard DeKaser, chief economist at National City Corporation in Cleveland, Ohio’s biggest bank and the ninth largest American mortgage lender, said. “Whatever reassuring signals they are sending shouldn’t be ignored.”

Bonds of housing companies with ratings below investment grade – including no. 5 KB Home and Beazer Homes USA, which builds in 19 states – returned 0.6% on average this month, compared with a 0.43% gain for speculative-grade bonds, according to indexes of corporate debt securities prepared by Merrill Lynch & Company.

The real estate industry was responsible for more than half the economy’s expansion since 2001, according to Merrill research. It’s now showing signs of slowing after the Federal Reserve raised interest rates 15 times since June 2004, to 4.75% from 1%.

The average 30-year mortgage rate climbed to 6.53% last week, the highest since 2002. New home sales tumbled 10.5% in February to an annual rate of 1.08 million. At that pace, there are enough new homes on the market to satisfy demand for more than six months, the largest backlog in more than a decade. In February, the median price of a new home fell 2.9% from a year earlier, to $230,400, the fourth straight monthly decline, the Commerce Department said March 24.

“Home prices won’t go up forever,” Robert Shiller, the author of “Irrational Exuberance,” a book about the stock market bubble of the late 1990s, said in an April 19 interview from his office in New Haven, Conn. “Booms need a story to justify the prices.”

Standard & Poor’s on April 5 raised Horton’s credit rating to investment grade for the first time, according to Bloomberg data. Investment-grade bonds are rated at least BBB- by S&P and Baa3 by Moody’s Investors Service. Everything else is considered junk.

Fort Worth, Texas-based Horton sold $500 million of bonds less than a week after S &P increased the rating. The company’s 6.5% 10-year notes yielded 160 basis points more than Treasuries, half the premium needed to sell bonds with the same maturity in 1999.

An investor who 12 months ago bought $1 million of Horton’s previous issue, a 5.625% note due in 2016,earned about $27,361, or about 2.7%, according to data compiled by Bloomberg. That compares with a return of about 0.5% for the average high-grade corporate bond, according to Merrill.

Horton, which sold more than 51,000 homes last year, said on April 18 that second-quarter net income rose 20% to $352.8 million, or $1.11 a share, from a year earlier. The company expects earnings per share to rise as much as 16% for the year ending in September.

“Horton’s above-average profit margins would provide some cushion if the company needed to lower prices to move product, which mitigates the risk of inventory buildup,” a New York based S &P analyst, Elizabeth Campbell, said in the April 5 report.

On the same day S&P raised Horton, it boosted Bloomfield, Mich.-based Pulte one level to BBB. Two weeks earlier, Moody’s increased Lennar Corporation of Miami, the third-largest American homebuilder by market value, one level to Baa2.

Some investors grew more optimistic last week after minutes of the Fed’s March 28 meeting were released and showed “most” policy makers “thought that the end of the tightening process was likely to be near.”