Global bond sell-off likely not over yet, Mohamed El-Erian tells CNBC
In a wide-ranging interview, the renowned economist also said the U.S. Treasury had taken "a step too far" with its market intervention.
TL;DR
- The sell-off of global government bonds is expected to continue due to upward pressure on yields.
- Traditional buyers of U.S. Treasurys, such as China, Japan, and Gulf countries, are becoming less reliable due to geopolitical and domestic issues.
- A fundamental imbalance between bond issuance and reliable buyers is driving pressure on interest rates, rather than inflation or Fed credibility alone.
- The U.K., Japan, and France are identified as particularly vulnerable G7 countries to sovereign debt problems, with the U.K. being "high-beta."
- France has become a focal point for the bond market, shifting focus from peripheral countries like Italy.
- The U.S. Treasury's intervention in market outcomes is seen as having gone "too far."
- Federal Reserve Chair Kevin Warsh's recent address at Jackson Hole was praised for addressing his reaction function, warning against forward guidance, and recognizing AI as a potential factor of production.