The precipitous drop in U.S. payrolls in February shows that profitable firms are bracing for a worsening of the recession by shedding jobs, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said Friday.
"The situation is getting worse, not better," El-Erian told Reuters Television on Friday. "Unemployment numbers are usually viewed as backward-looking. What today's number tells you is forward-looking. It tells you that even the profitable firms are shedding labor today in order to position themselves for a more difficult outcome."
The Newport Beach, California-based Pimco oversees more than $800 billion.
The U.S. unemployment rate hit a 25-year high of 8.1 percent in February as employers buckling under the strain of a recession axed 651,000 jobs, government data showed on Friday.
Adding to the gloom, a combined 161,000 more jobs were lost in January and December than previously believed. February's decline in non-farm payrolls was close to economists' forecast for a 648,000 drop.
"What you are seeing today in the U.S. you are going to see in the rest of the world in the next few months," El-Erian added.
Against this backdrop, investors should stay in high-quality investments, he said. "This is not the time to take enormous risk," El-Erian said. "This is the time to be under the government umbrella."
Pimco has been a buyer of high-quality debt such as "AAA" rated bonds issued by banks and backed by the Federal Deposit Insurance Corp, as well as mortgage and agency securities.
El-Erian said Treasuries aren't on Pimco's buy list as the firm projects new issuance of about $2.5 trillion over the next 12 months.
"We've warned that Treasuries are getting to levels where investors would want to slowly migrate out, but migrate out to safety areas ... because issuance is going to be a problem," he said.
"Treasuries have benefited enormously from not only a flight-to-quality but also a flight-to-liquidity."
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