El-Erian Says Bond Market Is Now More Consistent With Economy Evading 'Deep Recession'

Allianz chief economic adviser and well-known economist Mohamed El-Erian pays close attention to the bond market, as it can often be an indicator for future stock market performance and broader economic conditions. His latest social post suggests the bond market has correctly priced in the current economic outlook.

What To Know: In a new post on X on Thursday, El-Erian flagged that the U.S. 10 Year Treasury was currently trading around 4%. 

"A level that, compared to the recent lows, is more consistent with the economic outlook unless you believe in a rather deep recession for the US," El-Erian said. 

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In an interview on CNBC's "Squawk Box" last month, El-Erian suggested that the Federal Reserve should target 3% inflation instead of 2% inflation, which would allow for a very soft landing.

At the time, the 10 Year Treasury yield was hovering around 4.25%. It continued to fall all the way down to around 3.8% as stocks rallied following the Fed's dovish commentary on rates, before bouncing back over the last week or so.

El-Erian told CNBC at the time that he wasn't anticipating a recession but expected the soft landing to be a bit bumpier than most were anticipating. It seems he still does not anticipate a "deep recession" and believes the bond market is aligned with the outlook for the economy.

At the beginning of 2023, El-Erian flagged the bond market, particularly the 2 Year Treasury Yield, as the best predictor of future stock market performance. 

"If it continues going up, I would be worried. If it comes back down toward 4% where we were not so long ago, I would be certainly more bullish," he said at the time. 

The bond market is currently projecting a 62% chance of a rate cut in March, according to CME Group data.

Market Check: The SPDR S&P 500 SPY and Vanguard S&P 500 ETF VOO were both slightly negative for Thursday's session at last check, while the iShares Russell 2000 ETF IWM was up about 0.15%, according to Benzinga Pro.

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Photo: International Monetary Fund on Flickr