Wednesday, February 10, 2010

U.S. debt fears make Germany a safer haven, Pimco bond director says



This is an amazing statement coming from the CEO of the world's largest bond fund.

Mohammed El-Erian said, "German bonds were likely to outperform given Washington's government debt to gross domestic product ratio of more than 60%. As we stand today, we prefer to take interest rate risk like government bonds in Germany, which has much better conditions than in the United States."

El-Erian seems completely clueless when it comes to understanding the distinction between the United States--a currency issuing nation--and Germany, which is no longer a currency issuer and therefore runs a risk of default, however small that may be. The U.S. has no risk of that happening, meaning that German bonds are infinite times more risky than Treasuries. He simply doesn't understand that!!! It is unbelievable!!!

Watch credit default swaps on Germany now that they are thinking about bailing out Greece. These are likely to get hit pretty hard.

It is truly amazing to see the level of economic ignorance coming from some of the highest regarded financial people in this country. No wonder we are in such a mess!

7 comments:

Tom Hickey said...

Stunning.

Mike Norman said...

You can pretty much kiss the stellar track record of Pimco good bye now that El-Erian is running the shop. If Pimco was publicly traded I'd short it!

Matt Franko said...

Mike,
US 10-yr yld: 3.63
10-yr Bund: 3.22

Report:The Bundesbank, which is responsible for conducting the debt auctions in Germany, sold EUR4.233 billion of the bund 3.25% January 2020 at an average yield of 3.22%, with a bid-to-cover ratio of 1.7. The EUR5 billion issue attracted EUR7.230 billion in offers."

You get a better yield also from the US 10yr currently.

googleheim said...

It's all about head-fakes.

Chanos and China, and this El-Erian
and his apples are bananas rigor.

He's trying to detract attention and misinforming - 60% ratio of US debt to GDP is wrong and it sounds like he's including debt that is not owed to anyone outside the USA.

bubbleRefuge said...

CNBC treats him like some kind of messiah. Embarrassing.

Matt Franko said...

Goog,
PIMCO buys alot of advertising from CNBC. They sponsor "The Bond Report" at CNBC.

Mike Norman said...

BR:

Agreed!