bill gross says he never shorted treasuries (insurance, transaction, credit)

[mathjak107]

in an interview bill gross says he never shorted treasuries as rumored. he utilized swaps which were mis-taken as shorts in their reporting.

many think it doesnt matter what he calls that transaction since he lost money in it no matter what by betting against them and being wrong..

if you dont know what these credit default swaps are they are in their simplest form a side bet that someone will or wont get paid off.

if a client owes a bank 500k and the client doesnt pay, the bank is out 500k. but suppose investors and insurance companies all around the world could make a side bet of hundreds of millions as to whether or not that bank gets paid off? thats a swap.

it may not be actually shorting the market but its still a short in nature no matter what bill calls it.

Bill Gross Isn

[Willy702]

While it hasn't been profitable to be out of treasuries, swaps are not shorts by any means. To be short means you are taking a pure risk and it has certain market implications. Swaps are brokered deals outside the marketplace and just involve the alpha between one return and the other. Say you think Norwegian debt will outperform US debt, a swap gets written to pay out any difference between the two above what the market already expects. Since PIMCO starts out with 100% USD exposure it plays much differently than just buying Norwegian debt where you would see both currency exposure and a tough entry without drastically moving the Norwegian market against you before you even enter the trade.

And I don't think Gross said be short US sovereigns, he just said stay out of them. Swaps are simply synthetic ways to get returns which makes sense for PIMCO to use because if they move their huge funds around outside Treasuries they end up repricing markets. I think its good he stays public about how exactly they are executing their strategy because it helps give clarity to how they might be affecting the supply/demand equation.

[BestintheWest]

interesting


Bill Gross: Still Early/Wrong, And Now Even Earlier/Wronger - MarketBeat - WSJ

[Willy702]

US sovereigns aren't the only game in town. I don't see why PIMCO would have reason to short a market much considering their charters. They can just simply pull out their money and put it elsewhere it appears to have a better risk/return. Problem for PIMCO is they are so huge and their actions so affect the bond market, they have to be in the spotlight at least talking somewhat about their actions. Even worse to get fully out of the US sovereigns, they almost had to go out and do swaps, to just dump all the bonds would have caused a small market panic. If they execute swaps and sell orderly into the market they will eventually get out and protect their prices and manage the volatility of the bond market as a whole.