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let's get more in the markets this morning Muhammad Al Aryan Allianz chief economic advisor joins us now Muhammad what's your take on on the big moves that we've seen in the treasury market the big moves that we've seen in the currency markets thank you Melissa look we are adjusting to the three Paradigm changes we've talked about on squawk the change in the liquidity Paradigm the change in the growth Paradigm and the changing globalization Paradigm and that was going to be bumpy but it offered a the prospect of a better destination a less distorted destination what is where we assume in the last 24 to 48 hours is two other things is an accelerated loss of confidence in policy making you've heard the FED discussion if you are here in the UK there's a lot of concerns about policy makers here so policy making going from a foot being a repressor of volatility to an amplifier volatility and then let's not forget what's happening to flows um Bank of America reported 50 billion went into Cash uh funds out of every single other asset class so we're starting to see those technical dislocation and even the treasury market is not functioning well so I'm I'm less worried about the first three things but I'm spending a lot of time on the on the final two things because they can create very unsettling volatility not just volatility I what you said about the treasury market and your focus on it right now because the volatility that we've seen I mean I I haven't seen it before but you may have seen it before in terms of the huge moves that we are seeing in yields just even intraday and I'm wondering if you think that there's something that that is signaling because so many people say that there's nothing wrong with the credit markets overall and that's where they would start being concerned about what the FED is doing in the impacts yeah so normally you worry about the peripheral markets about the high yield Market The Leverage loan market and you spend very little time worrying about the treasury market but there are episodes and you will remember them may 2013.
again in March 2020 when the problem is the mark the safest Market when the problem is the mother of all markets around the world which is the treasury market and I can tell you yesterday's price action and what I've what I've heard from people trading that market makes you uncomfortable so keep a really close eye on the functioning of the market not the yield level but the functioning of the market what does the curve steepening under these circumstances tell you we were talking to Sri Kumar before and he said that he believes that the treasury more that the that the yield steepening the curve steepening signals that um investors are looking forward to beyond the recession to better times which seems like a very optimistic take but could very well be true and I'm wondering what you think it signals because it seems like there there may be certain technical issues that's causing the 10-year yield to go higher and therefore the curve to steepen look I hope he's right but I'm in the it's all about technical issues um a lot of people can't get done what they want to get done so they're getting done what they can get done um don't underestimate the amount of sub-optimal decisions being made right now because liquidity has become so patchy so I I would be careful extrapolating too much in terms of what does it mean for the economy because right now technicals are really in control of quite a few curves when we see issues in the treasury market Muhammad do we eventually then see the next shoe to drop or the next Domino to fall whatever metaphor you want to use trouble in the credit markets troubled and leveraged loan markets things like that or can it be isolated um so the treasury market is the one you cannot isolate you can isolate other markets but that's the one you cannot isolate and it's a reflection of structural weaknesses and fragilities that a lot of people have have written about the G30 has written about the treasury itself has been looking into it so so this is it was long in the making and it was Amplified in a major way by the duration of QE and the size of QE so these are structural um it matters because remember if you can't get what you want to get done you will start spreading contagion and that's why it matters for the credit Market you start spreading contagion um around markets so so let's keep an eye on it I'm hoping it will pass I'm hoping this is just short-term various things coming together but of the five factors um this is the one along with the loss of confidence in policy making that I would keep a very close eye on the other stuff we can navigate and we understand how to navigate them how do you think about Equity valuations here with treasury yields where they are going where they are right now so look I think there's value um there's some very attractive single names but you just can't avoid the macro Factor right now I was asked you know if you want if you've had a lot of cash on the sideline like I have because I've been worried in fact I have a bet with Joe and I'm sorry he's not on today because I was going to offer him the possibility to buy back his bet would go about where we're going to get to on the s p and I had said 3600 um before we get to 4 400 and I think unfortunately that is likely um so I wouldn't go in single names right now because they are being impacted in a major way by what's happening Market wide but there are significant value being created
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