Pimco CEO Sees Bond Inflows as a Negative for Economy

Pacific Investment Management Co. CEO Mohamed A. El-Erian said Friday that the massive inflow into bond markets isn't a good sign for the economy.

According to a Bloomberg report, "Net inflows into bond funds reached $120 billion year to date at the end of August as investors became more risk averse, Pimco’s chief executive and co-chief investment officer said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. Newport Beach, California-based Pimco oversees more than $1.1 trillion of assets and runs the $248 billion Total Return Fund, the biggest bond fund by assets."

"It has a bad impact on the economy as a whole," El-Erian said. "The average investor is de-risking their portfolio, moving from equities into cash and bonds and that is not a good sign for the economy if people become more and more risk- averse."

"We continue to see solid inflows" into bond funds, El- Erian continued. "It has to do with people being uncertain and wanting more self-insurance."

The Bloomberg report notes that "Under what Pimco calls the "new normal," global growth will be below historical averages during the next three to five years as developed economies struggle with mounting deficits and increased regulation in the wake of the 2008 collapse of credit markets. El-Erian is co-chief investment officer with Pimco co- founder Bill Gross, who runs the Total Return Fund."

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