Mohamed El-Erian, chief executive officer of Pimco, which runs the world's biggest bond fund, weighs in on how world markets may react to the news that U.S. forces killed Usama Bin Laden. These comments first ran in FTAlphaville:
“Markets will see the news as implying an overall reduction in terrorist threats, the elimination of a specific security risk and, as such, a lowering in the risk premia. In the very short term, it could also involve the possibility of isolated disturbances in some parts of the Middle East and Asia….There could be a few exceptions to this general phenomenon. Specifically, isolated disturbances are a possibility in some places in the Middle East and Asia.
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"In net terms, the markets are likely to treat this mix — of a durable reduction in security threats and some possibility of isolated disturbances — as involving a net overall reduction in risk premia. This would bolster equity prices worldwide while placing some pressure on those government bond markets that traditionally benefit from flight to quality.
"Oil markets face a more uncertain outlook as, here, the impact of reduced risk aversion interacts most directly with the possibility of some increase in supply concerns. Importantly, the significance of President Obama’s announcement could go well beyond this by serving as a catalyst for a renewed sense of unity and purpose in the US. Were this to materialize, it would help re-establish some of the key ingredients needed for policymakers to make real progress on a number of critical economic and financial fronts.”