El-Erian expects government bond sell-off to continue
Economist Mohamed El-Erian believes that the global sell-off in government bonds is likely to continue. He said this in an interview with CNBC at the Ambrosetti Forum in the Italian city of Cernobbio.
According to El-Erian, he does not see readiness in the United States for immediate fiscal consolidation, so pressure on bond yields may persist. Bond yields and prices move in opposite directions: as yields rise, bond prices fall.
Pressure on the bond market
This week, the global government bond market experienced a sharp sell-off. Yields on securities issued by several major countries rose to multi-decade highs amid concerns about inflation and higher interest rates.
On Friday morning, the sell-off eased somewhat: yields on most government bonds in developed markets changed little, while US Treasury yields declined slightly across the curve.
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Demand for US government bonds
El-Erian, a professor at the Wharton School of the University of Pennsylvania and chief economic adviser at Allianz, said that he does not see problems with the functioning of the markets. At the same time, in his assessment, traditional reliable buyers and holders of US Treasury securities are under pressure.
He linked this to China’s reduced willingness to buy US securities for geopolitical reasons, domestic problems in Japan and the Gulf countries, as well as the Norwegian sovereign wealth fund’s review of the structure of its investments in US government bonds. According to the economist, pressure on interest rates is largely explained by an imbalance between the borrowing volumes of governments, hyperscalers and companies, and the number of reliable buyers.
El-Erian named the United Kingdom, Japan and France as the most vulnerable among the G7 countries to sovereign debt problems. He also noted that France has become the focus of attention in the European bond market, while Italy is trading at lower yields than France.
