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PIMCO chief says European yield-cap unlikely
August 21, 2012 / 2:07 PM / 5 years ago

PIMCO chief says European yield-cap unlikely

NEW YORK, Aug 21 (Reuters) - The chief executive of bond giant PIMCO said on Tuesday that European policymakers were not likely to limit yields on sovereign debt.

“We do not think it is likely to materialize,” Mohamed El-Erian told CNBC, commenting on a German magazine report that the European Central Bank was considering capping inflamed borrowing costs by buying euro zone countries’ bonds if they breached a certain level. He said the “open-ended” nature of such a commitment made it unrealistic.

“The minute they target a yield level, they are saying basically it’s unlimited intervention, and we don’t think the ECB is there,” he added.

El-Erian, whose Pacific Investment Management Co had $1.82 trillion in assets as of June 30, also said the U.S. unemployment situation is worsening as politicians take too long to confront it.

“Our concern is that the longer it takes for the politicians to respond, the more the problems become embedded in the structure of the economy,” he said.

El-Erian, co-chief investment officer PIMCO as well as CEO, said the long-term duration of unemployment is one factor that runs the risk of making the jobless “unemployable.”

Asked about co-chief investment officer Bill Gross’s statement that the cult of equity is dead, El-Erian reiterated that investors should expect 4 to 6 percent long-term return on equity and a 3 percent return on bonds.

“Be much more agile, much more global in the way you invest,” he said.

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