Exclusive: Bill Gross Is Now Short US Debt, Hikes Cash To $73 Billion, An All Time Record

Tyler Durden's picture

A month ago, Zero Hedge first reported that Bill Gross had taken the stunning decision to bring his Treasury exposure from 12% to 0%: a move which many interpreted as just business, and not personal: after all Pimco had previously telegraphed its disgust with US paper, and was merely mitigating its exposure. This time, in another Zero Hedge first, we discover that it is no longer business for Bill - it has now become personal (and with an attendant cost of carry). In March, Pimco's flagship Total Return Fund (TRF) has now taken an active short position in US government debt: -3% on a Market Value basis (or $7.1 billion), and a whopping -18% on a Duration Weighted Exposure basis. And confirming just what PIMCO thinks of US-related paper is the fact that the world's largest "bond" fund now has cash, at a stunning $73 billion, or 31% of all assets, as its largest asset class on both a relative and absolute basis. We repeat: cash is more than PIMCO's holdings of Treasurys and Mortgage securities ($66 billion) combined. To paraphrase: in March PIMCO was dumping everything related to US rates (see chart below). This is the first net short position that PIMCO has had in Government-related debt since the Great Financial Crisis of 2008, and going positive in February of 2009 only after it became clear that the Fed would commence monetizing US debt one month later. This is the closest that Gross has come to making a political statement and is now without doubt putting his money where his mouth is. The only event that could possibly derail Gross' thinking is a huge market crash forcing a rush to Treasury safety. Alas, as has been made all too clear recently, US debt is no longer the safe haven it once was. Which begs the question: when will the TRF break out a "gold" asset holdings line item.

And another side effect of the firm's scramble away from debt and into cash is that the effective duration of TRF is now down to 3.6: only the second lowest since the 3.38 posted in December of 2008... when the world was on the verge of ending.

That Bill Gross is willing to risk a surge in redemptions (after all who would be wiling to pay PIMCO to manage a third of their assets in the form of supposedly devaluating cash) in order to make a statement about the credibility of the US government, and specifically the viability of its IOUs, is easily the only thing that the US government has to consider when evaluating the prospects for funding trillions and trillions of US deficits at "acceptable" rates in the absence of further quantitative easing by the Chairman.

If Gross is indeed right, something very wicked this way comes.


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Glasgow Gary's picture

Hatha yoga on the beach at dawn. In the afternoon, shorting more of the 30 year bond.

Bring it on!


A L I E N's picture

Correct me if I'm wrong but aren't they basically predicting more of the same? That Benny must keep rates low and continue some form of QE.  Since QE2 commenced last fall treasuries have sold off and equities/commodities have soared anticipating surging inflation.  If they continued current policy treasuries would continue to sell off.  I would have to assume if there is no QE3 planned(yet) and rates were raised that money would leave commodities/equities and go into treasuries(opposite of now) with the FED put gone. 

LowProfile's picture

That would be correct, but I think the headline "Gross is short treasurys" is missing the bigger story:  Gross is taking a huge long bet on the USD.

And considering

The only event that could possibly derail Gross' thinking is a huge market crash forcing a rush to Treasury safety.

You could argue he's hedging that bet with a treasury short?  Hmm...

ZeroPower's picture

Gross is taking a huge long bet on the USD.

Exactly, key point.

The author clearly did not miss this fact, but i propose its better to report about the 'apocalyptic' short UST fact as opposed to long USD.

macholatte's picture

Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates.

-- Bill Gross April 2011



IQ 145's picture

 Exactly; the "US Treasury Bond" as the CME calls the long bond contract, made an absolutely beautiful double top in Sept. and Oct. 2010; and paid enormous profits to anyone who sold off the Oct. Top. This was a multi-year top, and this market is now a multi-year bear market; I couldn't agree with you more; sell the rallies, roll over your positions and allow plenty of time; these things are going back below 100; this contract can be a very significant money maker.

Djirk's picture

rates going up.....still solid holdings in munis

New_Meat's picture

pick your muni poisons carefully D. - Ned

yipcarl's picture

You brag about holding Muni's?  Soon you'll be broke.  If you don't think they will default that debt in a heartbeat you're delusional. 

Johnny Lawrence's picture

You obviously don't understand the muni market.  Yes, you shouldn't buy them blindly in this environment.  But, there are some issuers who are extremely solid.  You just have to know what you're looking for.

Rwbrown72's picture

Everything in your spreadsheet assumes that everything in your spreadsheet is not a lie or a "partial" truth. Long hard assets and Tiger Blood!

ZeroPower's picture


Gross holds a fair amount of munis as well, obvs not the shit ones as im sure his DD is second to none.

yipcarl's picture

Wow Johnny, thanks for the insight. You must 'sell' the shit.  

Djirk's picture

I wasn't bragging about my positions just making an observation on the PIMCO holdings...pick you insults carefully

duncecap rack's picture

Rate hike April 27

CPL's picture

Yup, double digits...any one want to call it.


I'm looking at 23.4%

duncecap rack's picture

I know everybody thinks this is full of shit. I have made these sort of comments before and nobody thinks it has any possibility but I have read a lot of hawkish fed official comments recently. I just want ZH'rs to consider a possible shift. Maybe make a hedge against the possibility of a reversal of the dominant trend since Jackson hole. I know they are up to something and that is my best guess.

davepowers's picture

it could happen.

after all, the ECB raised rates at practically the same moment Portugal was in que for a bailout.


Spigot's picture

DC Rack,

When I first read the ZH article my first thought was "Where duh money GO..?" And I posited that they had to do something with duh cash, ya know? Not sure if, but may have suggested they were going short too...and here's ya go, dudes!

ECB rate hike may have been calculated to be a lagging push on inflation such as what the US Fed did in the 1970's to make the debt problems disolve. They lagged it all the way till they brought Volker in to tbe the 'bad cop'.

If so, then US Fed may also play that gambit. If they think they have sparked enough inflation, then they can chase inflation higher by being free with lending but also slowlty inching up rates as inflation starts to run. (IE - negative interest rates ramping inflation).

IMO they have to get the nominal debt to GDP's corrected. They do not want to let debt imploded (well maybe a little). What they want is to wash away the debt with "controlled inflation".

Whatever! Go POG, POS and POO!

New_Meat's picture


Christopher Robin also approves ;-)

- Ned

Bicycle Repairman's picture

The 1970s game.  When do we get our "Whip Inflation Now" buttons?

43 Steelie's picture

I don't think ZH is dimissing a rate hike as a possibility. If there is one, it will be de minimis, superficial and won't do anything to quell the long-term issues with the US and the dollar.


Benny B is no Tall Paul Volcker...nor can he afford to be without massive deflation and default.

Bendromeda Strain's picture

JPMorgan swap book says "I don't think so, Ben"

tmosley's picture

Problem is, there is ALWAYS a lot of hawkish talk.  It's just that there is never any hawkish action.

mdwagner's picture

Every quarter point adds how much to the federal budget (let alone state and local)?  How can the banks who all borrow short to lend long survive rate hikes?  I don't know how it's possible to hike rates without massive defaults.  I think they'd much rather allow massive inflation than defaults.  Inflation hurts the serfs a lot more than the feudal lords.  Defaults hurt the feudal lords a lot more than the serfs.

I really think it's one or the other.

CPL's picture

I wouldn't discount it.  So far the idea of shorting ANYTHING is a bad idea where the fed is concerned.


Fuckers are as slippery as a bar of prison soap.

FeralSerf's picture

Unless/until Bill's cash hoard is in something like Swiss Francs, he's still not really short.  He's only betting that the yield curve will steepen.

It's difficult to short using USDs as the reference when the stock of USDs is increasing as fast as it is.  You might be right that the pig you've shorted is worth less in REAL money, but that doesn't mean it's worth less in USDs.  Too bad we can't use gold as the reference currency instead.

chubbar's picture

They could absolutely raise the rates. Here we go, drumroll ....... 1/4 percent raise in rates! WOW! Whoop de fucking doo!

Inflation is 6+%, so the real rate of return is now what?  -5.5%??? That's a fucking good deal?? Who gives a rats ass? We are still sinking into the abyss. Those cocksuckers at the Federal Reserve think we should jump on that insult? Fuck them!

Let them raise rates up to 8%+ or so and I'll think about it. Give us a real rate of return and I'll leave the gold trade and go into bonds. Otherwise, shut the fuck up!

Since that would reveal the bankruptcy of the U.S. gov't in less than a day, I think I'll stay in gold. Let them play their meaningless fucking games with small incremental rate increases. Get back to me when it gets 'real'.

Bernanke, you suck cock!

cosmictrainwreck's picture

I like the drum-roll...nice touch

narnia's picture

At what fed funds rate does the $300 trillion interest rate swap market implode?

malek's picture

Marc Faber put it succinctly: As long as rates remain negative by far in real terms (i.e. below inflation rate), any rate hike is meaningless.

props2009's picture

So has gross bought gold? 

Yield2Greatness's picture

I'd bet on it.  And HUGE like!!!

Renfield's picture

Of course. By now, who hasn't?

Al Gorerhythm's picture

All of those not on the "Who's Whom" list.

SWRichmond's picture

I don't know about gold, but I'd bet the farm he'd already gotten his T short position before he released his op-ed slamming T's. 

Amish Hacker's picture

Consider what would happen if Mr. Gross did decide to make a move into gold. Let's say he took the $73 billion (and remember, this is just his cash---one-third of total assets) and decided to play in the Comex sandbox. Total open interest at the moment is just over 500,000 contracts. Call it half a million contracts of 100 ounces each, or 50 million ounces. At $1,475 gold, that works out to $73,750,000,000. In other words, if the Total Return Fund tried to put its cash holdings into the Comex, it would own the entire open interest.



FeralSerf's picture

Gross and HSBC+JPM, the two counter-parties.  I like it.  Where's the popcorn?

ohbythebay's picture

Why do you think the US will be here in a 1000 years ? Rome isn't. None of the EMPIRES exist that should have lasted "1000" years. The US will be lucky to be here as it is now in 10 years...The only way it will survive is through drastic change and WE DONT CHANGE.


We are seeing the fall of the US empire in its LATE stages...The barbarians are already PAST the gate and dining in the White House with the false promise keeper...

Find out who your local banking billionaire is and fall into line early as part of the new class of SERF...All hail King Chase ...

BTW..do they still get to bed our women before marriage ?



Ruffcut's picture

You have to hand it too gross and his fed cronies, they are always a step ahead of us sheeple. There has to be an endgame plan for all these bankers that are so far up each one's ass.

How about this one. Continue pounding the T's causing a GS "controlled" panic and ole billy boy jumps in to save the day with a 20-30 discount to boot. Make a little coin on the shorts, be out before everyone else and make a good ole fashion killing, on the squeeze.

RockyRacoon's picture

You are saying he want to pull a Soros?  Not bad.

Dejean Splicer's picture

I think he meant that israel will be here in 1000 yrs. Her puppet will be dust in the wind, the reference did not go unnoticed.

Sometime you must read between the lines.

chubbar's picture

Any chance they'll want to bed our women AFTER marriage? I'm getting pretty frickin tired of the demands and would love a break!

Sofa King's picture

Dude, What the hell are you talking about "Rome isn't"?  I visited there a few months ago, sure the Colussium was closed due to a general strike...but that shit's still there.

Smu the Wonderhorse's picture

The Byzantine Empire lasted more than a thousand years. I once attended a lecture by a Byzantine scholar who said that the standard issue Byzantine coin was worth the same in the twelfth century as in the fourth. Now that's sound money.

Missing_Link's picture

Bill Gross will get his ass handed over in a plate. 


The United States of America will still exist in a thousand years, and all debt maturities will be honoured.

Yes, the USA will still exist in a thousand years.  What on earth does that have to do with your other two ridiculous statements?

Sorry  ...  I'm only feeding a troll, aren't I  ...