Bond investors confident in Fed’s shrinking balance sheet

Bond investors are gaining confidence that Federal Reserve Chairman Ben Bernanke will unwind the central bank’s unprecedented $3.3 trillion balance sheet without sparking a crash similar to 1994, when Alan Greenspan surprised the market by doubling benchmark lending rates in 12 months.

Though sovereign debt levels have more than quadrupled to $23 trillion, yields for 10-year Treasurys are 5% points lower than they were in 1994 and forward measures show the current 1.74% level rising only to 2.04% in a year.

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