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July 06, 2016 at 10:15 AM
Could the U.S. 10-year Treasury fall below 1%? According to Mohamed El-Erian, it’s possible.
“We no longer control our yield curve,” the chief economic advisor of Allianz said Wednesday on CNBC’s “Squawk Box.” “Our yield curve has been captured by Europe, has been captured by economic developments there, and has been captured by policy prospects there. So, we could [fall below 1%].”
The 10-year Treasury note yield slid to 1.37% in afternoon trading Tuesday.
Despite this, El-Erian still thinks the U.S. is in a 2 to 2.5% growth economy.
“The yield curve looks a little bit strange relative to macro-indicators,” he said. “It doesn’t look strange if you compare to what’s happening overseas. We have this massive disconnect between domestic economic conditions and a yield curve that prices lots of other things in the economy.”
According to El-Erian, this disconnect is “something that we don’t quite fully understand.”
“It’s most likely going to lead to a further disconnect between economics and finance,” he added.
In El-Erian’s view, the equity market seems “very decoupled” from other markets.
“The equity market seems to be somewhere else completely compared to fixed income, foreign exchange, financials, property,” he told CNBC. Adding, “It can continue to be decoupled if you believe central banks can maintain this wedge, if you believe central banks can continue to repress financial volatility.”
