Post-election rallies in stocks and bond yields are the result of a "romance" with President-elect Donald Trump's proposed policies of corporate tax reform, infrastructure spending and reduction of regulations, economist Mohamed El-Erian told CNBC on Monday.
"[Trump] has changed expectations about three things: liquidity, growth and inflation. And that has had a huge impact, not just on the stock market, but the bond market as well," Allianz's chief economic advisor said on "Squawk Box."
Liquidity in the market, the ability to buy and sell assets without causing major disruptions, has been a major concern since the 2008 financial crisis. Low economic growth and low inflation have also been prevalent during the presidency of Barack Obama.
In early Monday trading, the 10-year U.S. Treasury yield pushed above 2.5 percent for the first time in more than two years, as the market sees the prospects of higher inflation from a Trump administration.
More inflation, in the 2 percent range, has been something the Federal Reserve has been looking for in order to rationalize another interest rate hike. The Fed kicks off its two-day December meeting Tuesday, with central bankers widely announce a rate increase on Wednesday. Policymakers last increased the cost of borrowing money in December 2015, the first such move in more than nine years.
"What you're basically seeing is a romance of reflation. It comes from the president-elect's emphasis on pro-growth policies," said El-Erian, referring to reflation, or measures undertaken to stimulate an economy. "That has had a massive impact on what have been artificial pricing of the bond market."
El-Erian said he's encouraged by Trump's Cabinet picks on the economic side, including Wall Street veteran Steven Mnuchin for Treasury secretary and billionaire distressed asset investor Wilbur Ross for Commerce.
"[Trump] has picked ... people who are committed to pro-growth, who have a feel for this," he said, adding there's a feeling since the election that the gridlock that's "paralyzed" Washington for years may be about to abate.