Bond market: Despite rally, PIMCO still bearish

Bond market uptick in Treasuries doesn't lift outlook for PIMCO's El-Erian. Market is too complacent about rising inflation, he says.

By Margo D. Beller, Special to CNBC.com

Pimco Chief Executive Mohamed El-Erian told CNBC Friday he is disturbed by rising commodities prices and how investors are missing the bigger picture of what that increase means.

"There are two realities out there. When economists and market participants look at [the CPI data] they call it 'transitory.' When Main Street looks at this it says, 'This is not transitory, guys, this is hurting me,'" El-Erian said.

Calling the situation "transitory" makes the market "complacent," he said. "We have to ask the question, what are the consequences? There are real-life consequences that everybody out there knows about and somehow we as a society have to navigate through it."

He said investors have to step back every so often and look three to five years down the road at the economy and what its effect will be on markets around the world.

He spoke the day the Labor Department released figures showing the Consumer Price Index was up 0.4 percent after rising 0.5 percent in March. Excluding food and energy it gained 0.2 percent after rising 0.1 percent in March, in line with economists' expectations.

After 30 years of watching government policymakers the Pimco executive said he is nervous about efforts to tackle what he called "bad inflation," or the rising cost of commodities, at the expense of "good inflation," or rising stock prices.

"I don’t think the policymakers know what the consequences are of what they’re doing," he said. "The balance between benefits and collateral damage, the unintended consequences, is shifting and this is not a very comfortable situation."

Despite a recent rally in 10-year Treasurys, he said Pimco has not changed its view on buying government bonds.

"Recent numbers in the economy are weaker than we would like. So that pushes yields down. But you have to recognize that as of June 30, the main buyer of Treasurys is stepping out," he said, referring to the Federal Reserve.

"Who’s going to step in at these levels of yields is not clear. And you certainly don’t want to own something if you can’t identify another buyer."

Pimco sees better value elsewhere, including shares of multinational companies. "There are opportunities all over the world," he said. "You want to be global in nature."