Confidence that the Fed can avoid triggering a 1994-style rout isn’t universal.

“I worry now,” Lloyd C. Blankfein, chief executive officer of Goldman Sachs, said May 2 at a conference in Washington. “I look out of the corner of my eye to the ‘94 period.”

Blankfein said investors are complacent due to record low rates for more than four years, and recalled that the market was shocked by the losses caused two decades ago when they went up.

“Rates could rise rapidly for at least two different reasons,” Antulio Bomfim, senior managing director at Macroeconomic Advisers LLC and a former Fed economist, said in a telephone interview May 1. “The Fed could bungle its communication effort and spook the market. Or despite the Fed’s best efforts on communications, the economic data could end up being a lot stronger than what people thought. That one is a little harder to deal with.”

‘Spring-Loaded Effect’

With the central bank’s asset purchases holding down rates, “at some point you are going to have this spring-loaded effect, where once the Fed starts pulling back, maybe you get a little bit of inflation, 30-year yields will say move up 50 to 75 basis points,” Rick Rieder, chief investment officer for fundamental fixed income at BlackRock in New York, said in a Bloomberg Television interview April 29. That “move leaves a real mark.”

Investors buying $10 million in 30-year bonds at 2.83 percent would lose $874,000 if the yield rose 75 basis points to 3.58 percent by the end of 2014, according to data compiled by Bloomberg. The value would decline by $1.2 million if the rate increased this year.

In 1994 the U.S. bond market fell 2.75 percent, the worst annual performance since 1978 according to Bank of America Merrill Lynch index data, as the central bank raised its benchmark rate to 6 percent by February 1995 from 3 percent 12 months earlier. Treasuries posted an annual loss of 3.35 percent, the worst performance until the 3.72 percent drop in 2009, according to the bank’s Treasury Master index.

Low Yields

Government bond yields worldwide were at record lows of about 1.3 percent as of May 2, according to Bank of America Merrill Lynch’s Global Broad Market Sovereign Plus Index. The amount of debt tracked in the index has more than doubled to $23 trillion over the past five years as the Fed, the Bank of England and the Bank of Japan have pumped cash into the financial system. It’s more than four times the $5 trillion in 1996 when data was first collected.