In an interview, Mohamed El-Erian had this to say about the current situation for global bond funds:

I’m really glad I’m no longer managing fixed income bond funds because technicals rather than macro fundamentals are ruling the fixed income markets right now, leading to these outsized moves. And, unless you are a trader that actually sees these flows, the environment is extremely difficult to navigate. I will say that the violent repricing following the Bank of England’s (BoE) recent decision to keep rates on hold was an instance of the market getting ahead of itself on pricing in rate hikes. It’s true that the BoE had signaled an intention to raise rates in coming months. But in the context of hawkish commentary and moves from central banks in Canada, Australia, and New Zealand, markets mistakenly lumped the UK together with these small, open economies that have no choice but to move ahead of the much larger, less open economies of the US and EU in raising rates. And, in fact, the UK has some very peculiar characteristics that have to be taken into account, like the furlough scheme and Brexit-related labor issues, which clearly distinguish it from these other cases.

I'm not sure what his point is here. The bond market has always been OTC and has a degree of inefficiency. Hence, many of the major fixed income benchmarks are from banks (Bloomberg Barclays Global Aggregate Bond Index, J.P. Morgan Emerging Markets Bond Index), because banks tend to have visibility into who's providing and who's taking liquidity.

But the fact he says "right now" makes it sound like it's a new thing. Maybe I'm missing something.


Was the bond market ever fundamentally-driven, given the limited visibility into market rates and/or cashflows of the issuers? And what is the "technical" dimension that El Erian is likely referring to?

  • It's just random analyst babble. If analysts actually knew what they were talking about they would be independently wealthy and not sharing their insights. There is a reason why almost all managed funds underperform index funds or simple ETFs.
    – Hilmar
    Nov 20, 2021 at 16:45


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