Bill Gross Goes Short Treasuries: "10Y Could Reach 2.8% By Year End"; Pimco Prepares To Go Long

Update: and just as the former Pimco bond king goes short, his prior employer prepares to take the other side of the trade.



One day after Bill Gross declared the end of the 25 year bond bull market...

... because when looking at the 10Y chart the yield had risen above the resistance trendline...

... this morning Gross doubled down, and following the sharp spike in yields this morning, when a Bloomberg report that China may boycott future TSY purchases sent yields as high as 2.59%, the Janus bond manager told Bloomberg Radio said that "we've gone short bonds" in the unconstrained fund and echoing Jeff Gundlach's Tuesdy webcast, said that "I've gone rather negative on high yield bonds too."

Commenting on today's report, Gross aid that there is "recent evidence showing that China is liquidating treasuries", and predicted that the 10Y yield could reach 2.7%-2.8% by year end.

The reason for the weakness, again, is the same as the catalyst behind Gundlach's own bearishness: namely that central bank treasury purchases are close to an end, although he caveated by saying that "I don’t think we’re headed for investment armageddon" and clarified that the "bear market" he envision in bonds, "is a mild one."

The last time Gross went so publicly bearish bonds was on April 21, 2015, when he successfully turmoiled the German Bund, which tantrumed higher by 50 bpsand led to a quick and painful VaR shock.

Will Gross - and Gundlach... and China - succeed in unleashing VaR shock 2.0, sending yields surging, and put the Fed's tightening plans on hold for the second time?


hedgeless_horseman lester1 Wed, 01/10/2018 - 10:33 Permalink


Price charts are useless when demand created by CB purchases artificially raises bond prices and lowers bond yields.

These markets are entirely driven by CB policy.

Thus, it's not what you know, but who you know (at 33 Liberty and the BIS) that determines the accuracy of any prediction or success of any investment strategy.



In reply to by lester1

Herdee Wed, 01/10/2018 - 10:35 Permalink

Everyone has to understand that the federal government can't afford higher interest on their debt. If they can they have to further monetize the debt. The tax receipts just aren't there any longer.

Paul Morphy Wed, 01/10/2018 - 11:01 Permalink

Room for yields to increase and not cause serious economic damage, is becoming more and more limited.

Too much debt issuance has led, and will led, to far less room for the yield rate to manoeuvre to.

BetterRalph Wed, 01/10/2018 - 11:25 Permalink

Treasuries Ah yes, I can smell hot dogs cooking, time to go to the circus, hope they have good coffee this time.  Just say no to more debt.  It's not a schedule 1 drug so how hard can it be to take debt off the menu this year?

johnjkiii Wed, 01/10/2018 - 11:26 Permalink

There has been a slightly negative tone to the 10 year as the momentum on PST has gone positive. The 20 yr & 30 yr aren't there yet and remember that Gross is touting his own book. He's completed his short position and now wants you to join. Get more evidence first. You don't need to be in on the bottom or out at the top. Just enjoy the big middle if it happens.

taketheredpill Wed, 01/10/2018 - 11:28 Permalink

Bund sold off after Gross's comments, likely thanks to headline tracking Algos.

I agree that bond bull SHOULD be over, if only because rates are so low, but someone seems to call the end every 3 or 4 years...

Bottom line is the factors that required the Fed to go to Zero have NOT gone away.  30+ years of pulling demand forward by borrowing recoveries with debt have come home to roost.

If Central Banks could buy sustainable recoveries we wouldn't be where we are.

The pain still awaits. The dude abides.



Consuelo Wed, 01/10/2018 - 11:33 Permalink



The U.S. cannot dominate the South China Sea, the Taiwan Strait, the Suez Canal, the Gulf of Aqaba, the Bosphoros Strait, the borders of all the Baltic States, Central America, South America and all parts Middle East any longer.    

See where this is leading...?

At some point this all begins to break down - rather rudely and simultaneously, with the Fed powerless to do anything but $Monetize. 

buzzsaw99 Wed, 01/10/2018 - 11:53 Permalink

the Janus bond manager told Bloomberg Radio said that "we've gone short bonds" in the unconstrained fund...

oh noes!  not the janus unconstrained fund.  not that!  they've got big ballz.  ooh, i'm skeert now!

lulz lulz lulz


I've got big balls

Oh I've got big balls

And they're such big balls

Dirty big balls...

Pausebreak Wed, 01/10/2018 - 12:01 Permalink

The 64 thousand dollar question is where is China going to unload its 3 trillion of US reserves?  My take is buying physical assets in Africa and oil in the middle east.

mkkby Pausebreak Wed, 01/10/2018 - 15:46 Permalink

No way they can stop buying treasuries so long as there is a trade deficit.  They peg the yuan to the dollar.  Unless they want the yuan to go WAY WAY, they have to buy treasuries.  Every day.

China wants a weak yuan.  China is still an export economy, and keeping those billion slaves working, eating and not hanging their leaders requires they keep exporting.  So they may talk about selling treasuries for politics, but it will never happen.  Remember they have hidden their buying thru other central banks.  The global chess game is all it is.

In reply to by Pausebreak

Harry Lightning Wed, 01/10/2018 - 23:03 Permalink

Be very careful about what Gross says, he has been known to say one thing and do something else. It has long been rumored that he will say something bearish to get enough of a sell side developed when he wants to buy, so that his nuys will not cause the market to run to the upside before he gets most of what he wants. Same when he wants to sell, he'll say he thinks its a great time to buy so that there will be an increase in bids, just so he can sell into them. 

The long end of the Treasury market, as I wrote here several weeks ago, needs to go up in yield and that's what's occurring now. It need to rise enough to provide an alternative to investing in stocks, which probably now has been achieved insofar as the 2 Year Yield is greater than the S&P 500 dividend yield. But have caution, once the stock market starts falling as money rotates from stocks to bonds, the stock market could enter a phase where the market starts falling because the market is falling, a chain reaction where the reason for the selling becomes dissociated with the original concept of relative yield. 

Once that occurs, once selling occurs because the market is falling, yields will start coming down again in response to the selling off of the equity markets. If the stocks fall as much as I expect them to fall, yields eventually could reach new historic lows, before they too collapse as people want their money back to live on in an economy torn to shreds by the falling stock market.

Best strategy now is to keep powder dry. Yields likely will be increasing, and when the do you will have the cash to buy them. Stocks likely face a dim future, and when that selloff starts it will continue. Falling stocks will crater the economy, and bring down commodity prices as well. If you were thinking about selling the house and moving to Arizona or Florida or to other places where baby boomers retire, sooner is better than later, since it will be hard to get current prices for your house one or two years from now. Take the money out of your house, move to that warm climate you've been dreaming of for the last thirty years, and rent for a couple of years. When prices fall as the economy goes into the tank, you will win the jackpot.

If you've done well over the past few years with your investments, take the profits off the table now and wait for new opportunities. If you have not done well, now is not the time to start trying what you didn't but already went up. Its a great time to get out of everything and do nothing but wait. Better opportunities will appear in time.