Allianz chief economic adviser and well-known economist Mohamed El-Erian has some advice for those who want to know what the market is going to do before it actually does it, and surprisingly, it doesn't require the use of Benzinga Pro.
"If you want to know what's going to happen ... follow the 2-year yield," El-Erian said Monday on CNBC's "Squawk Box."
What To Know: They say no one knows what the market is going to do, but El-Erian has flagged the 2-Year Treasury yield as one indicator that's likely to predict what the future has in store for the markets.
"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.
The yield indicator has been moving in the wrong direction for market bulls since the start of February. Following the Federal Reserve's latest decision on rates, the 2-year yield started trending higher and it's maintained its course ever since.
"The market is starting to sense that the very comforting disinflation story is more complex than we'd like it to be," El-Erian said.
Following the FOMC decision at the beginning of the month, Fed Chair Jerome Powell reaffirmed the central bank believes there is still "a lot of work left to do," but he sounded comfortable with where inflation was at and noted that the committee has "no incentive and no desire to over tighten."
Still, El-Erian is warning that the bond market is sniffing out a potential reversal in inflation in a handful of goods categories like car prices and energy, but equity markets haven't reflected the potential shift, he said.
He told CNBC that consensus expectations have moved from a pause to a 0.25% hike in March to anticipating a 0.25% to 0.5% hike at the next meeting.
Why It Matters: In an interview at the Economic Club of Washington, D.C. last week, Powell noted that the Fed remains data-dependent.
The next big indicator will come in the form of the January CPI print, due Tuesday morning.
The bond market is currently projecting a 90.8% chance of a subsequent 0.25% hike in March and a 9.2% chance of a 0.5% hike, according to CME Group data.
"Remember, that's a critical word, 'disinflation.' Chair Powell said it 11 times at his press conference, and the market loved that. So it's important that we continue with it. That's why tomorrow's number and the ones that follow are so important," El-Erian said.
It's crucial that the CPI print continues to show disinflation in the goods sector because "service disinflation is not going to happen for a very long time," he added.
Price Action: The SPDR S&P 500 SPY is up a little over 1% since the last FOMC meeting. The 2-Year Treasury yield has climbed from approximately 4.1% to more than 4.5% during that time. It was hovering around 4.543% at the time of writing, according to Benzinga Pro.
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