Bond investors have a lot to be anxious about. With interest rates near record lows, it’s not a question of whether but when rates will start rising again. Lloyd Blankfein warns that today’s interest rate environment has parallels to 1994, when then-Federal Reserve Chairman Alan Greenspan surprised the market by doubling benchmark rates in 12 months. “I worry now—I look out of the corner of my eye to the ’94 period,” Blankfein, chief executive officer of Goldman Sachs, said on May 2 at an Investment Company Institute conference in Washington. He recalled how investors used to low rates were shocked when borrowing costs rose, leading to selloffs in the bond and stock markets.
Others on Wall Street say this time will be different, in part because of Fed Chairman Ben Bernanke’s clearer and frequent statements on what would cause central bank policy to change. “The Fed is working very hard to improve the clarity of their communication,” says William Irving, a money manager at Fidelity Investments. “And they’re particularly worried about avoiding a repeat of 1994.”