Pimco is the world’s largest bond fund, and its manager Bill Gross has been quite vocal over the last two years about the U.S. Treasury’s massive and unsustainable deficits. He was so vocal about it that he decided to load up on Treasuries and make a killing from February of 2009 until July of last year, with only a few brief respites in between. That’s just the type of person Bill Gross is – he’s a shark wading in the deep blue waters of Wall Street, and, like most other ones, he’s an “insider trader”.
He went on a Treasury-buying binge in February 2009, just in time to fully ride the coat tails of the Fed’s QE operations that commenced in March and monetized $300B in long-term Treasury debt. . No one in the public domain knew about the existence of this program in February, or the extent to which it would be carried out. It’s not about economic fundamentals and it’s certainly not about principles or “what’s right”, it’s only about money and, specifically, lots and lots of money.
Now, the TRF is net short Treasuries and many people are convinced that its short position is, in fact, nothing short of a prediction by Gross that the Treasury market will soon collapse. Indeed, he seems to be at least betting that rates will increase significantly in the short-term. Perhaps that is true or perhaps he is making a bad bet, but perhaps we should also be wary of such plainly advertised convictions. After all, the insider “beltway” encompassing Wall Street and Washington has two lanes running in both directions.