Global bond sell-off likely not over yet, Mohamed El-Erian tells CNBC

• Traditional reliable buyers of U.S. Treasurys are under pressure: China is less willing due to geopolitical reasons, while Japan and Gulf countries face domestic issues, creating a supply-demand imbalance
• Three G7 countries are particularly vulnerable to sovereign debt problems: the U.K. (described as 'high-beta' with amplified rate movements), Japan, and France
• European bond dynamics have shifted significantly, with France now a focal point for market concern rather than peripheral countries like Italy, which is trading inside French yields

Summary

Key Message: Renowned economist Mohamed El-Erian warned that the global government bond sell-off is likely to continue, driven by fundamental supply-demand imbalances rather than inflation or Federal Reserve credibility concerns.

Main Points:

El-Erian, Chief Economic Adviser at Allianz and Wharton professor, told CNBC that upward pressure on yields will persist due to lack of U.S. fiscal consolidation. Global government bond yields recently surged to multi-decade highs amid inflation and rate hike concerns, though the rout cooled slightly on Friday.

Critical Issue - Disappearing Buyers:

El-Erian identified a structural problem: traditional "reliable buyers and holders" of U.S. Treasuries are retreating:

• China: Reducing purchases for geopolitical reasons
• Japan and Gulf countries: Facing domestic constraints
• Norwegian Sovereign Wealth Fund: Reconsidering U.S. bond allocation

This shrinking buyer base cannot absorb the massive issuance from governments, hyperscalers, and corporations, creating a fundamental supply-demand imbalance driving rates higher.

Vulnerable Countries:

Three G7 nations face elevated sovereign debt risks:

1. United Kingdom - Described as "high-beta," experiencing amplified rate movements relative to U.S. changes
2. Japan
3. France

Notable Shift: El-Erian highlighted that France has replaced Italy as the eurozone's bond market focal point, with French yields now trading wider than Italian yields—a significant reversal indicating stress has moved from peripheral to core eurozone economies.

Market Implication: The continued bond sell-off suggests persistently higher borrowing costs globally, with particularly acute pressure on fiscally vulnerable developed nations.