Treasury market still very liquid: Pimco's Kiesel

Here are the most attractive bonds: Pro
Here are the most attractive bonds: Pro   

While JPMorgan CEO Jamie Dimon has warned that new regulations have resulted in diminished liquidity in the bond market, Pimco's Mark Kiesel said the U.S. Treasury market is still "very deep and very liquid."

"There's no question that the Volker rule is causing higher capital requirements for banks. That will lead to slightly less liquidity but it's going to affect Treasurys less than corporate bonds and other more liquid products like CLOs (collateralized loan obligation) etc.," Kiesel said in an interview with "Power Lunch" Thursday.

"I think Treasurys are still going to be quite liquid."

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Traders in the 10-year bond options pit at the Chicago Board of Trade signal orders.
Frank Polich | Reuters
Traders in the 10-year bond options pit at the Chicago Board of Trade signal orders.

In his annual letter to shareholders Thursday, Dimon said the recent volatility in the currency and Treasury markets was a "warning shot across the bow."

Kiesel, who is global head of Pimco's corporate bond portfolio management, said he agreed with Dimon that central banks are impacting the valuations of Treasurys and government bonds around the world "given the size of the central banks' balance sheets."

Without the Federal Reserve's buying up of U.S. Treasurys, the yield on the 10-year would be at least 50 basis points higher, he said.

Therefore, to find decent income right now, investors need to look at things like corporate bonds and non-agency mortgages, which are not being subsided by central banks.

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Specifically, Kiesel likes housing-related sectors, such as building materials, homebuilders, non-agency mortgages, and title insurance.

"We think the housing market has legs. Household formation will start to pick up. The labor market is strong," he noted.

He also likes cyclicals, including lodging, gaming, autos and airlines.

"We think that this economy is the middle phase. It will continue to grow around 2.5 to 3 percent. The consumer is strong," Kiesel said.

—CNBC's Patti Domm contributed to this report.