Bill Gross, the high-profile fixed income investor, revealed on Wednesday that his main fund has made a bearish bet on the bond market. The Janus Henderson manager said the $2.2bn Global Unconstrained Bond Fund has taken a short position on Treasuries, UK gilts and German Bunds. Mr Gross, the so-called bond king, said he left the Japanese government bond market alone. In an interview with Bloomberg television, he said that there appears to be a “negative type of posture for bonds”. His remarks come after two days of heavy selling for developed market sovereign bonds.
The rise in yield has been acute, for example, for US Treasuries, with the 10-year yield nearing 2.6 per cent on Wednesday from 2.48 per cent on Monday. (Yields rise when prices fall.) Mr Gross pointed to a report from Bloomberg that China plans to either slow or halt its purchases of Treasuries for one reason behind his negative view. He said there is “evidence” that the country had already been liquidating some of its holdings in US government debt in order to diversify its portfolio.
“Liquidation of Treasuries by China … is certainly a negative,” he said. Investors have noted recently that broad growth in the world economy and monetary tightening by central banks may begin to push yields higher after a long decline. Mr Gross remarked that he sees only a “mild” bear market for bonds that brings the 10-year Treasury yield up to 2.7 – 2.8 per cent. Dan Ivascyn, group chief investment officer at Pimco, offered a more upbeat view on Treasuries. He said in an interview with Reuters that prices on shorter-dated Treasuries are “looking more interesting at these levels”. He said that “it remains premature to declare beginnings of bear markets”. On corporate debt, Mr Gross said that he has “gone rather negative on high yield bonds”. Junk bonds, which are rated as riskier than their investment grade peers, posted a big rally in recent years that has knocked spreads, a measure of the compensation investors receive to hold risky assets, near levels last seen before the 2008 financial crisis.