“Europe’s fiscal crisis is getting worse and will keeping fueling market instability, according to Pacific Investment Management Co.’s Mohamed A. El-Erian.
“The problems in Europe are getting bigger,” El-Erian, co-chief investment officer at the world’s biggest bond fund, said on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays as he prepared to speak before the Federal Reserve Bank of St. Louis. “Europe has a debt issue and Europe has a growth issue, and until Europe deals with both, we are going to have these reoccurring periods of nervousness in the market.”
Yields on Spanish bonds rose this week to the highest level since December and those on Italian notes advanced to the most since February. Those yields fell Wednesday as European Central Bank Executive Board member Benoit Coeure triggered speculation that the bank will revive its bond-purchase program to lower Spain’s borrowing costs.
“Spain shows the markets remain nervous,” Coeure said at an event in Paris. “Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.”
The Standard & Poor’s 500 Index gained 0.7 percent Wednesday after falling 4.3 percent in the five days ended Tuesday, partly on concern Europe’s economic recovery is stalling.
‘Bought’ Tranquility
“People are realizing that the tranquility that we have is bought rather than earned,” El-Erian said. “It depends on the ECB putting in liquidity in order to calm markets. At the first indication that the ECB may not be committed to this, people get really nervous.”
Investors should avoid the bonds of Greece and Portugal, he said, adding that Italy and Spain are more attractive because they don’t have a solvency issue.”
If you enjoy the content at iBankCoin, please follow us on Twitter
