ECB Bailouts Will Not Be Unlimited for Euro Zone: El-Erian

European policymakers are not ready to commit to unlimited bailouts for debt-distressed countries and that includes capping bond yields, Pimco's CEO Mohamed El-Erian told CNBC.

Mohamed El-Erian, chief executive officer and co-chief investment officer of PIMCO
T.J. Kirkpatrick | Bloomberg | Getty Images
Mohamed El-Erian, chief executive officer and co-chief investment officer of PIMCO

Among the many rescue options bandied about for peripheral nations overcome by sovereign debt is a plan for the European Central Bankto buy enough bonds so that interest rates in the affected countries wouldn't exceed a certain rate.

El-Erian, who helps run the largest bond fund in the world, said such a plan to go beyond the current Long-Term Refinancing Operations likely would meet stiff resistance.

"We suspect that is one of the options, capping yields," he told "Squawk Box." "We do not think it is likely to materialize because it is such an open-ended commitment."

Before the ECB would even endorse the move, it would have to get assurances from nations such as Greece and Portugal that they would be more fiscally responsible, El-Erian said. ECB member nations would also have to give their blessing, and subordination issues would have to be worked out in case debtors defaulted, he said.

"Remember, the ECB can say — like they did for LTRO I and LTRO II — 'We will intervene up to a certain amount on our balance sheet," he said. "The minute they target a yield level they are saying basically it's an unlimited intervention. And we don't think the ECB is there."

The European debtsituation is but one of the crises facing investors, who have been pushing global equity markets up despite all the headwinds, likely in anticipation of future central bank easing efforts.

El-Erian's counterpart at Newport Beach, Calif.-based Pimco, Bill Gross, recently drew attention by proclaiming that the "cult of equity" was over and stock investors will have to get used to lower returns.

El-Erian reiterated the position and said the focus for investors should be on managing their portfolios in a slow-growth world.

"Expected returns are going to be lower moving forward, unfortunately. Why? Because we've borrowed returns from the future," he said. "The message from Bill, and it's been a consistent message from Pimco: Hey, investors, expected returns unfortunately are going to be much lower. Second, correlations are changing, and therefore be much more agile, much more global in the way you invest."