ECB's option of capping yields will not materialise: PIMCO

European policymakers are not ready to commit to unlimited bailouts for debt-distressed countries and that includes capping bond yields, PIMCO's CEO Mohamed El-Erian told CNBC-TV18.

Among the many rescue options bandied about for peripheral nations overcome by sovereign debt, is a plan for the European Central Bank (ECB) to buy enough bonds so that interest rates in the affected countries wouldn't exceed a certain rate.
El-Erian, who runs the largest bond fund in the world, said such a plan to go beyond the current LTRO (long-term refinancing operations) is likely to meet with stiff resistance.
"We suspect that capping yields is one of the options that the ECB is looking at. We do not think that it is likely to materialise because it is such an open-ended commitment. If the ECB's offer of intervention targets the yield level, it means unlimited intervention and we don't think the euro-zone will allow that. So, even this is one of the options that the ECB is looking at, we don't believe that it is likely to materialise," El-Erian explained.
The PIMCO chief also asks investors to prepare for tough times ahead. "What is the cult of equities and investment? One is to assume returns that can serve you. In fact, a lot of people think that the market will replace hard work. That's not going to happen any more. Expected returns will fall going forward, because we have borrowed returns from the future."
"The cult assumes certain correlations among asset classes and these correlations are starting to change. So PIMCO has started to advise its investors to be much more agile and global with their investments as expected returns are going to be lower and the correlations are changing."