If you’re concerned that the Federal Reserve will derail the bond market when it finally starts raising interest rates, the last two tightening cycles suggest those worries may be overblown.

Instead of tumbling, U.S. debt securities from Treasuries to junk bonds gained. They returned an average 5.7 percent between June 2004 and June 2006, when the Fed lifted rates to 5.25 percent from 1 percent. In the seven months ended January 2000, bonds retained their value even as benchmark borrowing costs increased 1.75 percentage points.

With the U.S. economy expanding at a slower pace and less wage growth to pressure inflation, there are fewer reasons for the Fed to raise rates as quickly this time as the central bank moves to end six years of unprecedented stimulus. Long-term bond yields that offer a greater cushion against higher rates than in previous cycles and demand for fixed income from a burgeoning number of retirees also suggest the inevitable selloff forecasters have predicted is less likely to materialize.

“It would be a mistake to bet against the bond market,” Priscilla Hancock, global fixed-income strategist at JPMorgan Asset Management, which handles $1.5 trillion, said by telephone on July 14. “The road to higher rates will be a long, slow march at a time when income is the most important thing. That means fixed income will still be an important place to be.”

Market Timing

In the U.S., debt securities of all types have rallied this year, confounding forecasters’ projections for losses, index data compiled by Bank of America Merrill Lynch show. Their 4.14 percent average return is the biggest since 2010.

Yields on 10-year Treasuries, the benchmark for securities as varied as mortgages, corporate bonds and emerging-market sovereign debt, have fallen more than a half-percentage point to 2.48 percent at 7:45 a.m. in New York.

The debate over the Fed’s interest-rate policy and its effect on bonds has been intensifying as the central bank moves closer to ending its monthly debt purchases, which has helped inundate the U.S. economy with more than $3 trillion of cheap cash since 2008 and propped up asset prices.

The stakes have never been higher. In just six years, the global market for bonds has ballooned more than 40 percent to a record $100 trillion, according to estimates from the Bank for International Settlements.

There’s now a 60 percent chance the Fed, which has held borrowing costs close to zero since 2008 to restore an economy crippled by its worst crisis since the Great Depression, will start raising rates by July 2015, futures contracts show.

History Lesson

Last month, the Fed itself predicted the target rate will rise to 1.13 percent at the end of next year and 2.5 percent a year later, according to the median projection of 16 policy makers. Based on their long-term growth outlook, they anticipate stopping once rates reach about 3.75 percent.

That indicates borrowing costs will increase less than in the previous cycle, when they climbed 4.25 percentage points, and rise at a slower pace than in 1999-2000, when rates ended at 6.75 percent, data compiled by Bloomberg show.

One reason is because the five-year-long expansion is still showing signs of weakness. Last quarter, the world’s largest economy contracted 2.9 percent, the deepest drop-off since the 2009 recession. Economists say growth will accelerate 3 percent next year when the Fed starts raising rates. That would still be slower than the 3.8 percent expansion in 2004 and fall short of the more than 4 percent pace in 1999 and 2000.

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