At the same time, forecasters have pared back their estimates for economic growth this year to 2.7 percent from 2.9 percent, even as they stick to their 3 percent projection for 2015, which would be the fastest in a decade.
“The market has taken the Fed at its word,” Tipp said by telephone. “That has created a very high hurdle for growth, which we haven’t seen. The Fed’s time line may be pushed back out and we could see a relief rally come back into the market.”
The longest-dated Treasuries, which are the most sensitive to losses as inflation and growth expectations pick up, indicate that some investors share Tipp’s concern.
‘Popping Champagne’
Treasuries due in 30 years have returned 8.4 percent this year, pushing down yields every month. That compares with a 1 percent advance including reinvested dividends for the Standard & Poor’s 500 Index, the benchmark gauge of American equity.
Dan Heckman, a senior fixed-income strategist at U.S. Bank Wealth Management, which handles $115 billion, is more sanguine.
Steady long-term U.S. borrowing costs will foster a stronger recovery and advance the Fed’s twin goals of price stability and full employment as the central bank curtails its monetary support of the economy, he said.
The gap between yields of the five-year note and the 30- year bond has narrowed to 1.8 percentage points, the least since October 2009. Longer-term bonds tend to rise or fall based on the outlook for inflation, while shorter maturities are anchored by the Fed’s policy rate.
“The way the market has responded to tapering and the pushing up of a rate hike, the Fed has to be dancing a jig and popping champagne corks,” Heckman said.