PIMCO’s El-Erian: Bond Bubble Simply New Normal

CEO shrugs off $40 trillion worldwide debt; Chairman Gross says market ‘turning Japanese’

Mohamed El-Erian, CEO of PIMCO. (Photo: AP) Mohamed El-Erian, CEO of PIMCO. (Photo: AP)

Relax. Nothing to see here; move along. Granted, he has a vested interest, but PIMCO CEO Mohamed El-Erian knows why worldwide bond markets, where yields have dropped to record lows and debt has exploded to more than $40 trillion, aren’t a problem.

“We may be in a synchronized slowdown” in global economic growth, El-Erian, whose company oversees $1.77 trillion, said in a June 6 interview with Bloomberg. “We could stay here for a while.”

As the news service notes, the slowdown matches the prediction by El-Erian in 2009 for a “new normal” in global economies characterized by a slower pace of expansion, higher unemployment and a greater role for governments in private markets following the worst financial crisis since the Great Depression.

“PIMCO officials point to Japan, which has been in and out of recession since the mid-1990s, as what the new normal would look like,” Bloomberg reports. “Even though it has the world’s largest debt load at more than $11 trillion, Japan has some of the world’s lowest bond yields because of years of below-average growth.”

Global “bond markets are turning Japanese,” PIMCO chairman Bill Gross added in a June 4 Twitter posting.

El-Erian’s comment to Bloomberg mirror similar comment made June 1 in response to the latest unemployment report, in which he called the report “grim” and said it’s “part of a very worrisome trend in which every major part of the global economy is slowing, and slowing rapidly.”

“It’s increasingly inevitable that Greece will exit” the euro, El-Erian said at the time. “The only question is how disorderly is it. Europe hasn’t been [able] to put the firewalls and most importantly hasn’t been able to break the link between weak banks and weak sovereigns.”

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