10AM Hour: Yields Retreat on Treasury Plan, Major Skin Cancer Breakthrough, Defense Tech Firm Goes Public 8/19/26

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Carl Quintanilla (0:53)

Good Wednesday morning, welcome to Squawk on the Street. I'm Carl Quintanilla, David Faber, Lesley Picker here at Post9 of the New York Stock Exchange. Sara Eisen is off today. Yields are pulling back after Treasury says it will double liquidity support for bond buybacks. We'll talk with Allianz's Mohamed El-Erian why he says the recent moves in the bond market will be more than just a headwind for the economy and the markets. We'll break down some of the social and political implications as well.

A major breakthrough for Moderna and Merck's skin cancer vaccine. Shares of both of those companies dramatically on the rise. Moderna doubling today. We'll look at what the trial data says and what it means. Plus, defense tech firm Lyntris going public today at the NYSE in a downsized IPO. The CEO is going to join us for more on that in just a minute. Let's get to bond yields though. Very important story backing off the highs after the Treasury's announcement that it's increasing the maximum size of its buybacks to at least $4 billion from two. That news also helping stocks today as well. As we said, Mohamed El-Erian joins us here. Chief Economic Advisor at Allianz has already written about this on some social platforms. Good to see you, Em.

Mohamed El-Erian (1:55)

Thanks for having me.

Carl Quintanilla (1:56)

Are we calling this yield curve control?

Mohamed El-Erian (1:59)

We are. It's really operation twist. Like the good old days, you end up buying the long end and you'll issue more at the short end and you're just trying to influence yields in the short term.

Carl Quintanilla (2:10)

Does it suggest to you that 5.3 was some kind of pain point of sorts?

Mohamed El-Erian (2:15)

It does.

We got a small signal when we got the joint intervention with Japan because the US was worried that Japan would be selling more treasuries.

But this is a much bigger signal. And it's not because of the economic implication as much as it is the political implications and the social implications.

David Faber (2:32)

What do you mean by that?

Mohamed El-Erian (2:33)

Well, mortgage rates go up. That adds to the affordability pressures. That's a political issue, a big political issue ahead of the election. And then you have the old issue. Do we have a K or do we not have a K? Now, who gets priced out of the mortgage market?

Who ends up having higher interest rates on their credit cards? It's the low income households. So look at this as trying to address this socio-political issue that is an issue for this administration.

Lesley Picker (3:01)

Does it address it though? Because we've talked about all the different culprits for why the long end yields were going up. Does some sort of financial engineering actually solve that? Does it keep the bond vigilantes at bay?

Mohamed El-Erian (3:12)

So look, fundamentally we have a race going on between the promise and the earnings that comes with AI and the cost of funding all of that. That's a race going on. And that race is going to determine many, many things. Now, can you in the short term influence somehow the balance? Yes.

Does it come, is it a free lunch? Absolutely not. Every form of yield curve control, and there's many more forms of yield curve control, have collateral damage and unintended consequences. So you can get a short term benefit, but it's not a longer term solution to this fundamental tug-of-war going on.

David Faber (3:50)

What would be an example of collateral damage and or in this case?

Mohamed El-Erian (3:54)

So you end up messing up the short end of the curve because you want to protect the long end of the curve. That's one thing you do. Who's going to absorb all this issuance? Okay, that has a lot to do with liquidity management. So we're going to get headaches at the end of quarters as to how we're going to manage that. Look at what Japan did. Japan did yield curve control explicitly by saying this is the yield at which we're going to intervene.