A Global Bond Rally With Grim Tidings

Mohamed El-Erian knows why bond markets from the U.S. to Germany and Japan have seen yields drop to record lows even after outstanding debt has ballooned. “We may be in a synchronized slowdown,” says El-Erian, chief executive officer of Pacific Investment Management Co., the world’s largest bond manager. “We could stay here for awhile.”

The credit markets are signaling tough times ahead. Yields on government securities in the U.S., Germany, the U.K., the Netherlands, and Australia tumbled to all-time lows this month as Europe’s debt crisis intensified and unemployment in the U.S. unexpectedly rose.