Why coronavirus shock is causing Treasury yield to 'drop like a rock': El-Erian

'Global growth outlook is deteriorating'

Buckle up: Market volatility from the new coronavirus is here to stay, according to Mohamed El-Erian.

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The yield on the 10-year U.S. Treasury note, which recently hit a record low of 0.90 percent, is "dropping like a rock for two reasons," El-Erian, chief economic adviser at Allianz Global Investors, told FOX Business’ Maria Bartiromo on Thursday.

EL-ERIAN, BRENNER, MINERD SHARE THOUGHTS ON FED'S EMERGENCY RATE CUT

Not only is a "massive wave" of lower rates coming worldwide, investors are pricing in "a big economic shock," he said. "It's a big supply shock, it's a big demand shock, so global growth outlook is deteriorating, and that's what the bond market is pricing."

The Federal Reserve announced an emergency 50-basis point rate cut on Tuesday morning, lowering its benchmark interest rate to a range between 1 percent and 1.25 percent, in an effort to cushion the U.S. economy from the economic fallout caused by the spread of COVID-19. Central banks in Australia and Canada have already lowered rates, and others are expected to as well.

El-Erian says the Fed's ability to counter the coronavirus impact is limited: A rate cut alone won't make people travel more or feel comfortable eating in restaurants. There are things the government can do to help counter the negative economic impact of the virus, however.

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"One is an ability to understand the virus and start to contain it," he said. "And second, hope that we can get immunity up to a vaccine or recovery rates up. That’s what's going to help the economy ultimately.”