Top Bond Forecasters Diverge as Fed Keeps the Market in Limbo

Anshul Pradhan and Stephen Stanley both saw the current US bond market coming. They just don’t agree on where it’s going.

Pradhan, the head of US rates strategy at Barclays Capital, and Stanley, the chief economist at Santander US Capital Markets, have been two of the most accurate Wall Street bond forecasters surveyed by Bloomberg so far this year. Each predicted roughly how much Treasury yields would rise during the first quarter — and broke with others by expecting rates to stay up through the end of June as sticky inflation kept the Federal Reserve on hold.

But the two are now parting ways.

Pradhan says that 10-year yields, currently around 4.5%, will likely push higher — possibly re-testing the 16-year peak of 5% that was hit in October — as the US economy keeps powering ahead. Stanley, by contrast, says the bond market has turned the corner: He expects the benchmark yield to hold steady through June and drift down to 4% by December, anticipating that the Fed will have leeway to start taking its foot off the brakes.

The divergence underscores the uncertainty that has continued to grip the financial markets even 10 months after the US central bank wrapped up its most aggressive rate-hike cycle in four decades.

That pause had left traders confident by late last year that the central bank would ease policy sharply this year. But those bets were upended by the surprisingly resilient economy and inflation that’s remained stubbornly elevated, driving bond yields back up and exerting a drag on the equity market.