El-Erian: The Yield Gap Between U.S. and German Bonds May Widen Further

Foreks - The President of Queens' College at the University of Cambridge, Mohamed El-Erian, commented on the increasing economic inequality between the United States and Europe. El-Erian suggested that this divergence could place further pressure on both the Euro and European bonds, highlighting that Europe is currently bearing the brunt of particularly challenging conditions.

He emphasized that market participants are beginning to grasp that different economic trends will dominate future developments, noting that the recent election results in the U.S. have strengthened the dollar while simultaneously triggering a decline in the Euro. This market behavior stems from expectations that the Federal Reserve may continue interest rate cuts at a more measured pace. On Thursday, the Euro briefly dipped below 1.05 against the dollar, marking its lowest level in the past year. El-Erian indicated that it would not be surprising for the Euro to weaken in the current economic environment. Additionally, the yield spread between the 10-year U.S. Treasury and German bonds widened to about 209 basis points on Thursday, creating the largest margin seen since April. El-Erian warned that this yield gap could widen further.