Trouble in the bond market is forcing investors to anticipate where the economy-and their portfolios-are headed.

The yield on the 10-year Treasury note recently surged past 5% to hit fresh 19-year highs. U.S. debt has topped a record $40 trillion. War with Iran is pushing oil prices higher. The Federal Reserve is expected to keep raising interest rates to tame inflation, suggesting mortgage and other borrowing costs won't meaningfully ease soon.

So how will the economy handle rising rates-and what should investors do to prepare?

The Wall Street Journal asked six leading money managers for their thoughts.

Dan Ivascyn | Chief Investment Officer, Pimco

Surging bond yields will weigh on the economy, and there are already signs of weakness in rate-sensitive sectors such as housing, says Dan Ivascyn, chief investment officer of Pimco, the $2.3 trillion fixed-income specialist.

But he notes that many consumers locked in low mortgage rates in recent years, shielding them from higher rates. At the same time, artificial-intelligence companies powering the U.S. economy will likely keep spending, another reason to anticipate continued growth.

"We expect some slowing," Ivascyn says. "Just not a recession."

If oil prices keep rising, bonds may feel more pain, he says. Longer term, though, AI investments could make the economy more efficient, keeping a lid on inflation while helping bond prices.

For now, he says investors should take advantage of the higher yields.

"You can build a 6% or 7% high-quality portfolio," Ivascyn says, which compares favorably with a stock market trading at high valuations.

Sonal Desai | Global Chief Investment Officer for Fixed Income, Franklin Templeton

Investors are fretting about rising rates and bond yields.

Sonal Desai remains optimistic.

Corporate earnings, equity markets and economic growth have all held up well, says Desai, who oversees more than $300 billion in fixed-income at Franklin Templeton.

"I think we're seeing a bond market re-rating, if you will, of what the U.S. economy is capable of," Desai says. "I'm not a believer that high rates are going to crush the economy. I think we can handle it."

Desai expects yields to continue to rise, pressuring bonds, as record government borrowing and the AI build-out compete for debt capital. She says investors who became accustomed to equity-like returns from their bond portfolios as rates fell need to reset expectations and focus on locking in "solid income."

Desai is avoiding the longest-dated bonds, which are most vulnerable to additional Fed rate increases, but is considering purchasing bonds from AI hyperscalers, such as Microsoft, Meta Platforms, Amazon.com and Alphabet, which offer sizable yields given their investment-grade ratings.

"These are sound companies, sound balance sheets," she says.

Rick Rieder | Chief Investment Officer for Global Fixed Income, BlackRock

Rick Rieder is thrilled about the risk-reward proposition that bonds offer.

"My funds are yielding 7-plus percent with a three year duration. I've waited four decades for the ability to do that," said Rieder, BlackRock's chief investment officer for global fixed income, who oversees more than $2 trillion in assets.

Rieder says investors don't need to take big risks to hit attractive fixed-income returns in the current environment. He is also upbeat that prices of long-term Treasurys will stabilize. In previous instances where the 10-year yield breached 5%, returns over the following 12 months were strong, he has been telling clients.

Higher yields mean that the number of investors wanting to talk about bonds is "exploding," Rieder says, despite the losses this year.

"People recognize that once you get the 10-year above 5%, you tend to make money," he said. "The question is whether today is the day to enter."

Rieder thinks that the answer is a cautious "yes." He is starting to "dabble" with adding longer-dated bonds, which would appreciate in price if government yields fall.

Ray Dalio | Founder, Bridgewater Associates

With U.S. borrowing showing no signs of ebbing, Ray Dalio says we are at the point where heavy debt begins to affect the overall economy.

Dalio, the founder of hedge fund Bridgewater Associates, has warned for years of the dangers of surging government debt, illustrating the potential consequences in a series of books including his latest, "How Countries Go Broke."

The U.S. is spending more than $1 trillion annually just to pay interest on all its debt, he notes. Debt-service payments-interest expenses plus maturing debt-have begun to "squeeze out" other government expenditures, a worrisome shift that is taking place in other Western nations, as well, he says.

Global bond yields will keep climbing, Dalio predicts, as the supply of government debt overwhelms demand. That will result in an eventual slowdown in borrowing-and growth. He recommends investors build a well-diversified portfolio but stay away from interest-rate-sensitive investments.

Bryan Whalen | Chief Investment Officer of Fixed Income, TCW

Rising rates usually scare investors. They shouldn't this time, says Bryan Whalen, chief investment officer of fixed income at TCW, which manages $200 billion.

Higher rates will pressure parts of the economy, but the biggest issuers of debt-hyperscalers spending to build AI businesses-remain profitable and maintain strong balance sheets. That will help them shrug off the spike in rates, Whalen says.

"More than half of U.S. growth is coming from interest-rate-insensitive borrowers," he says. Even if the Fed hikes one, two or three more times, he says it won't matter for that swath of the economy.

Investors haven't fled from bond funds, despite this year's losses, which Whalen views as a positive sign. And bond spreads-the extra yield demanded for riskier bonds-remain narrow, another indication the economy is holding up well.

Whalen doesn't believe the rate-increasing cycle will last very long, partly because inflation won't surge, despite the ongoing war and higher energy prices.

He says investors are being well-compensated for the risks of holding bonds. "The war will end and commodity prices will come down."

Rob Arnott | Founder, Syzygy Asset Management

Inflation tied to the war should be temporary, but Rob Arnott says the challenge is knowing when it will end.

"That's the key question," says Arnott, the founder and chairman of Syzygy Asset Management, formerly known as Research Affiliates. "Trump would like us to believe that it will end imminently. I hope he's right, but I don't see a lot of evidence that that's correct."

Arnott believes that AI is a transformative technology that will boost productivity, but he isn't a fan of large-cap stocks that have surged on AI enthusiasm.

"I'm of the view that we're looking at a bubble here," says Arnott, who argues that a flood of money into index funds has pumped air into the bubble "in a way that was impossible in 1999 and 2000."

Arnott sees an extreme valuation gap between companies in the S&P 500 and the next 500 largest U.S. companies. He believes smaller companies will outperform big ones in the coming years.

-Photo credits: Pimco; Jeenah Moon/Bloomberg News; Alfonso Duran for WSJ; Jemal Countess/Getty Images; Joe Vericker; Brad Torchia for WSJ