By Jennifer Ablan and Aaron Pressman
NEW YORK Nov 9 Italy's debt woes signal "a
new, even more dangerous phase in Europe's debt crisis,"
Mohamed El-Erian, co-chief investment officer of top bond
manager PIMCO, said on Wednesday.
The European Central Bank can act as a circuit breaker but
can only be effective if its actions are supported by a host of
other measures, El-Erian, who helps oversee more than $1.2
trillion at PIMCO, home to the world's largest bond fund, told
PIMCO is the only U.S. investor in the top 10 list of
holders of Italian sovereign debt, based on publicly available
filings. With a $4.8 billion exposure, it owns almost half of
all U.S. institutional investors' total holdings.
El-Erian did not comment on PIMCO's holdings of Italian
European shares fell on Wednesday as rising tensions around
Italy's debt situation pushed its bond yields into euro-era
record highs, pressuring risk assets across the board.
Rick Rieder, chief investment officer for fixed income at
BlackRock Inc , the world's largest asset manager, said
he was buying small amounts of Italian debt last month for
portfolios that had little or no prior holdings.
"We have become more comfortable with the levels of some of
the debt, like some intermediate Italian bonds," Rieder said on
Wednesday. "These levels will foster a greater sense of urgency
toward an ultimate European solution. However, we still
maintain a very conservative posture here, and see a number of
hurdles which still have to be cleared before growing
The markets could get more volatile as European leaders
seek a solution, he added. "We are optimistic that this will
happen over time, but still think that markets will be stressed
until that time comes," he said.
Among the New York-based firm's $3.3 trillion of assets,
Rieder helps oversee $620 billion of actively-managed fixed
After rallying at the open after Prime Minister Silvio
Berlusconi said he would resign as soon as the Italian
parliament passed urgent budget reform, an increase in margin
calls on Italian debt by two European clearing houses pushed
yields on Italian 10-year paper to 7.5 percent
and sent stocks tumbling.
The rise in yields above 7 percent, seen by many analysts
as unsustainable in the long-run because of the increase in
Italy's debt costs, prompted aggressive buying of Italian debt
by the European Central Bank, which in turn took some of the
edge off both equity and bond market runs.
"Domestic politics are undermining already complex
relations among Italy and its external creditors," El-Erian
"Attention will soon shift from when and how Berlusconi
will step down to whether he can be replaced quickly by an
effective government that designs and implements a multi-year
program to contain debt and promote economic growth. Market
technicals are amplifying disruptive fundamentals."
Investors domiciled in North and South America represent
just 6 percent of all Italian government debt publicly
disclosed and held by institutions.