‘Train Wreck’ Economy or Red-Hot Inflation Is Big New Bond Call

A wild year on Wall Street has traders fretting one of two extreme scenarios will engulf the $23 trillion Treasury market ahead: Either a fresh bond selloff thanks to red-hot inflation -- or a sustained rally on mounting recession risk that sends yields back toward historic lows.

Market participants are butting heads over what big move will come next.

The Federal Reserve is embarking on a high-wire mission to ramp up interest rates at the fastest pace in decades without crashing the real economy, endangering investing styles of all stripes.

In a bearish scenario, managers like Bridgewater Associates reckon the 10-year yield could jump to 4% as inflation proves relentless -- a prospect that risks more damage for just about everything from tech stocks to emerging markets.

On the bullish flip side, an economic “hurricane” talked up by JPMorgan Chase & Co. Chief Executive Jamie Dimon could see yields falling back around 2.25%, according to a less-popular but no less-volatile scenario advanced by the likes of Standard Chartered Plc.