The chief executive of Pimco, the world's biggest bond fund, voiced concerns on Monday about massive U.S. debt levels, saying he preferred to invest in German government bonds than Treasuries in the current environment.
Mohamed El-Erian, head of Pacific Investment Management, called Greece a "massive wake-up call," saying its debt crisis threatened to infect other nations and push investors into safe-haven bond markets.
U.S. Treasuries are traditionally seen as the preferred safe haven, but El-Erian told Reuters Television that German bonds were likely to outperform them, given Washington's government debt to gross domestic product ratio of more than 60 percent.
"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 said in an interview.
He said the United States faced structural issues which its politicians and policymakers would have to address this year.
"When it comes to currency risk, we like to take it in places which have the strongest fundamentals. What we are focusing now on is to see where the strongest fundamentals," he said when asked about the fortunes of the U.S. dollar.
The U.S. dollar has rebounded in 2010, gaining more than 3 percent on a basket of currencies and over 4.5 percent against the euro as jitters over the fiscal problems facing Greece, Portugal and Spain intensify.
Spreads between benchmark German bonds and Greek debt have blown out to record levels of more than 400 basis points.
Worries of contagion has led investors to bail out of riskier assets like stocks and commodities in the past three weeks and seek the safety of government bonds and lower-yielding currencies such as the yen and the U.S. dollar.
Still, El-Erian sounded optimistic about investment prospects in emerging Asia, especially in stock markets.
In the short-term there are risks of a correction to the market, but in the long-term it is a very good bet, he said.
"Emerging equity markets tend to overshoot on the way up and on the way down," El-Erian said.
"So long term, it is an exposure you would like to have but the entry point has to await some correction."
Pimco has $31 billion of dedicated emerging-market assets under management. Emerging stock markets globally rose 74 percent last year, outstripping developed markets, with much of the rise coming from Asia.
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