Mohamed A. El-Erian , Columnist

What US Treasury Volatility Means for the Economy

The gyrations in US government debt are unlikely to disappear but should be manageable unless a central bank makes a misstep.

August 7, 2023 at 9:30 AM UTC

By Mohamed A. El-Erian

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

The Fed and the Bank of Japan are at the controls.
Photographer: Toru Hanai/Bloomberg

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Last week’s sharp moves in the US government bond market have people wondering about the implications not only for the outlook for other financial assets, including stocks, but also for the economy and policy. Here are my main takeaways and their consequences:

The volatility last week differed from that of 2022 and earlier this year because it was driven not by the policy-sensitive short end of the yield curve (such as the two-year Treasury) but by the longer-dated bonds. The yield on the 10-year note surged from 3.92% to 4.19%, retracing to 4.03% on Friday, while the yield on the 30-year bond rose from 4.03% to 4.20%, hitting a weekly high of 4.31%. This shift in drivers suggests a stronger convergence within markets on the Federal Reserve’s likely interest-rate path in the immediate future along with a broader range of factors influencing the long-term maturities.