The Fed Just 'Doesn't Understand' Bond Market: Allen Sinai

The Federal Reserve simply doesn't understand its short-term impact on the market, and the economy is not healthy enough to sustain higher rates right now, two market pros told CNBC on Thursday.

Allen Sinai and John Lonski spoke after New York Fed President William Dudley said the markets are misinterpreting Fed guidance on its plans to taper bond purchases and that expectations are "out of sync" with the central bank's statements.

He said a rise in short-term interest rates are "a long way off" and that what the central bank is doing with asset purchases has little to do with a plan to hike rates.

(Read More: Fed's Dudley: QE Could Increase If Labor Market Doesn't Improve)

"Dudley has not told us anything that we don't know," Sinai, chief global economist for Decision Economics, told CNBC's "Squawk on the Street".

If the Fed begins to taper, demand for Treasurys will diminish, taking the key interest rate on 10-year Treasurys upward, he said. "If I'm a trader in the fixed income side, I can't be long until I see how that plays out," Sinai said.

Over the long term, he added, one way or another we'll see a better economy, rising inflation and higher interest rates. Short term, however, the markets "overdid it" on the move in interest rates, but playing higher rates from here is "the only way to look at it from an investment point of view," he said.

What Dudley said "doesn't matter," Sinai added. "The Fed doesn't understand the dynamics of short-term movements in markets. In the short run, you just can't be long on bonds. That's also why corporate bond yields are rising."

(Related: Why Bond Selling Hysteria Is Overdone)

"It's important to remind financial markets that the economy has yet to strengthen by enough to unambiguously justify even the thought of a winding down of Fed bond purchases," said Lonski, of Moody's Capital Markets Research Group.

"The corporate bond market has responded even more negatively than the Treasury bond market of late," he said, noting that the move in corporates have far outpaced that in Treasurys by a "very wide margin."

(Related: Pimco's Gross: Don't Jump Ship on Treasurys Now)

Lonski said the corporate bond market is still concerned that the economy isn't strong enough to sustain a 2.5 percent yield on 10-year Treasurys.

"There's really no convincing evidence that we're about to enter a period of persistently faster economic growth," he said. "The reality is, of late, both business sales and corporate profits are rising at rates that are well under their long-term averages."

"This is no time for higher borrowing costs," he added.

— By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from "Squawk on the Street" @ToscanoPaul.