Markets

Bill Gross and the big PIMCO Treasury bet

Bill Gross' role in the bond market is in some ways similar to that played by Warren Buffett in the equity markets.

He's regarded as one of the elder statesmen of the field, and his Pacific Investment Management Company (PIMCO) manages a total of $1.1 trillion in assets and includes the Total Return Fund, the world's largest single mutual fund with net assets of $242.22 billion as of October 5, 2011 .

Back in March, Gross famously fled the market in U.S. Treasury bills, fearing that inflation would undemrine their value. He also worried that once the second rounding of quantitative easing (QE2) wrapped up in June, there would be no more buyers for U.S. government debt . The Total Return Fund retreated towards cash and mortgage holdings, and hinted that it might move into the equity market.

That move didn't play out well, with demand for Treasuries rising and yields dropping, which has hurt the performance of the fund. Now, Gross is walking back his mistake and making a bet in the opposite direction - buying longer-dated Treasuries , the Financial Times reports, in expectation of decreasing long term interest rates and falling bond yields.

Bill Gross is about as well informed as anyone, though it's easy to read a slight sense of frantic recalculation in the maneuver. As the FT points out, the Total Return Fund is now ranked 552 out of 604 fellow bond funds by Lipper, with a return of just 1.9 percent so far this year.

If Gross is right, it might be bad news for everyone - falling yields and rising demand for U.S. sovereign debt is highly correlated with falling equity values and recessions, since investors bail out of commodities , currencies and stocks and into the safety of fixed-income assets.

For stock market investors, it would be better for Gross to be wrong twice in a row.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.