The growing sovereign debt problems in Europe will continue to keep markets under pressure, Bill Gross, co-CIO and founder of Pimco, told CNBC Thursday.
“The magnitude is not the same as the subprime crisis, but to a certain extent, they're similar,” Gross said in a live interview.
Global stock and commodities markets fell sharply Thursday, while the US dollar and Treasurys rallied, as escalating fears that Greece, Portugal and Spain would default on their sovereign debt led investors to dump riskier assets.
“Global markets for 12 months have been re-levered on the back of government and central bank credit creation," Gross said. "Now we’re beginning to question the pricing of all risk assets predicated upon that type of phenomenon.”
In the U.S., the Dow Jones Industrials fell back to near 10,000, while European shares fell by the most in 10 weeks.
U.S. Treasury debt prices jumped, with yields on two-year Treasurys on track for their biggest drop since mid-December.
“Think of this as a balloon that’s been expanded," explained Gross.
"First of all, we had private credit expansion that imploded and almost exploded with the subprime and Lehman crisis," he continued. "And now we’ve had public re-expansion to the extent that we’ve expanded in stocks at certain price earnings ratios, and high yield bonds at certain narrow yield spreads. That expansion is over and what we’re seeing today the hedge funds taking some of the leverage off the table.”
Gross said he believes Greece's sovereign debt problems will eventually be solved.
“We don’t sense that Greece is a risk from the standpoint of actual default—it will be resolved," he said.
The dollar rose to a seven-month high against the euro but fell against the yen .
U.S. light, sweet crude oil fell about $4 to below $73 per barrel, and spot gold prices fell more than 4 percent, to around $1,062.