The U.S. bond market’s most accurate forecaster, who plies his trade 500 miles from Wall Street, says yields are sending ominous signs about the economy. While economists at the biggest bond-trading firms wrongly predicted that the benchmark U.S. 10-year Treasury yield would end last year at 5 percent, a University of North Carolina, Chapel Hill, professor came a lot closer to getting it right. “It was luck, partly,” said James F. Smith, 67, who teaches finance at the school. “The other reason is the anticipation that inflation would be contained and that continued rate increases from the Federal Reserve would keep longer-maturity investors enthused about their returns.” Smith turned out to be the top forecaster in Bloomberg’s January survey of 66 economists. He predicted the benchmark 10-year yield would end the year at 4.49 percent. At the time, the yield was about 4.27 percent and the median estimate was for it to climb to 5.04 percent by Dec. 31. It finished 2005 at 4.39 percent. Yields move inversely to bond prices. “Those Wall Street gurus have bigger expense accounts than I have total income,” Smith said. Smith said the bond market is waving a caution […]

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