Fed Tool

While those asset purchases may have helped distort prices, they have also given the Fed the option of selling bonds as part of its exit strategy, a tool to increase long-term yields that Greenspan didn’t have.

There’s a risk associated with a more aggressive tightening: Raising benchmark borrowing costs higher may choke off the recovery by discouraging banks from extending credit. Lenders typically finance long-term loans with near-term debt, and an inverted yield curve usually precedes a recession.

Raising rates too quickly “could be dangerous,” said Todd Hedtke, vice president in Minneapolis at Allianz Investment Management, which oversees $100 billion in assets. “The Fed is going to be careful here.”

Bond investors seem to see nothing wrong with the status quo. Individuals have poured $39.7 billion into fixed-income mutual funds this year, compared with $43.5 billion for all of 2014, according to the Investment Company Institute. By comparison, they’ve sent just $6.7 billion into mutual funds investing in U.S. stocks in 2015.

Term Premium

“Everybody knows the Fed is going to raise rates, they don’t seem to be bothered by it right now,” said Jim Bianco, president of Bianco Research LLC in Chicago. “There’s no real threat of inflation.”

While the term premium’s negative 0.19 percentage-point gauge on April 1 suggests Treasuries are expensive, the measure usually hasn’t climbed when the Fed’s raised rates in the past.

In eight tightening cycles going back to 1972, it’s risen three times in the six months after the Fed moved, according to data compiled by Bloomberg. During the other five periods, it was either little changed or fell, suggesting long-term Treasuries remained at existing prices or rallied.

BlackRock Inc.’s Jeffrey Rosenberg says the bond market’s too complacent and is poised for a correction. Treasuries gained for the fifth straight quarter ending last month, the longest streak since 1998.