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Former Bond King Short U.S. Bonds, Sees 'Operation Twist' in Fed's Future

Published 03/16/2021, 02:33 PM
Updated 03/16/2021, 03:25 PM
© Reuters.

By Yasin Ebrahim

Investing.com - Unlike some investors, former Pimco Chief Executive Bill Gross is not waiting around for clues from the Federal Reserve or its Chairman Jerome Powell for his next big trade as the former bond king said he is betting that rates will increase and the Fed will be forced to step up bond buying to keep rates under control. 

Gross reportedly said he is short United States 10-Year and United States 30-Year Treasuries, betting the Federal Reserve will be forced to step and buy bonds, pushing prices up and yields down, as inflation is on the road to 3% to 4%.

"I have a hunch that what was known as Operation Twist in the late 40s after World War Two and the Fed trying to keep interest rates down by buying 10s and longer bonds that Operation twist may be in our future where the Fed is limited to about $1 trillion in outright spending, and would begin to spend more on 10s, 20s and 30's to keep long interest rates down," Gross said in a Bloomberg interview.

He also speculated that the Fed may have already initiated operation twist - a monetary policy tool previously used by the Fed in the past to lower long-term interest rates by buying and selling U.S. Treasuries of different maturities - following the recent spike in bond yields during the last weeks.

Gross has been bearish on Treasuries prices, which trade inversely to yields, for years. In a tweet on Jan. 9, 2018, he said: "bond bear market confirmed today."

But the man who reigned over the bond market for over four decades when rates interest rates were ranging at 15% to 20% continues to cast his eye over the Reddit-linked trading action that has captivated global attention. Gross, seemingly unfazed by the angst directed at short-sellers like Melvin Capital, said he is still short GameStop Corp (NYSE:GME) after revealing last month that he made about $10 million on the bearish bet.

"[R]ight now the borrowing rate on shorting shares for Gamestop is only one and a half percent which indicates no real squeeze or no pressure and so with volatility of 400% annualised you need see a doubling of the price in order to lose money. I think it is a perfect opportunity for option sellers not buyers," Gross said.

Gross initially took up the position after seeing the stock double overnight following Tesla (NASDAQ:TSLA) CEO Elon Musk's tweet of "Gamestonk!!" on Jan. 26.   "Why would the market double overnight when Musk does “Gamestonk!!”? What does it mean? Half of this I’m oblivious to. It’s almost like I’m an idiot, but I didn’t think that was right. Musk is a little devil," Gross said in an interview with Citywire last month.

Latest comments

" Musk is a little devil " most obvious statement of the year goes to....bill gross.
operation twisted economic fed policy still trying to sell the world its bottle of 2% snake oil inflation policy...  go get ***** fed
Either way no matter what Gold is going up.
As Benjamin pointed out, why short 10 year when Fed is going to buy it up. 10 year yield may go to as low as 1 % this week.
all the fed has to say is they intend to....they wont have to then
How about we raise interest rates and get all these zombie companies and non-profitable, high market cap IPOs out of the markets. Cut the froth. In a real capitalist environment, businesses succeed or fail without government balouts and FED lending programs buying junk bonds.
That is definitely a possibility of what is about to happen over the next few years
Nobody is sure about futures, interest rates etc. However dead will come anyways with 100% probability to 100% of people. And no analyst has given a glympse of what this means
Sure. And I don't get a GLIMPSE of what you're saying. Use a speller for God's sake
Makes no sense why would you short bonds if you think the fed will start buying them soon?
I think he’s suggesting they won’t be able to suppress rates even when they try. It was confusing to say the least.
The article suggests, the fed may have already started buying long term bonds. So yeah doesnt make sense, but again im not a king either.
He’s saying that rates are going to get out of control over the next several years like they did after WW2, thus the fed will need to try and control them with operation twist when they get to 8% or whatever. As rates are going up over the next few years, he is making money shorting bonds. He’s not a day trader, he’s talking several years.
tweet 2018
lol buy bonds crazy just crazy what idlot buys bonds just on start of a crisis
No real strategist will tell you his strategy....
wait, so he is short treasuries, but thinks the FED wil enact operation twist again? I'm not sure I can understand his trading strategy.
the guy says he expects fed to purchase more bonds but its due this massive purchasing that yields gain so he says basically that he trades against himself. typical such wannabe economist that dont know how it works lol
He said that operation twist is in the future, the future means 4-5 years down the road when he thinks interest rates will be much higher like 8 or 9%. Makes perfect sense if you’re not a millenial who thinks the “future” means next week...
These  guys come and tell something like short that means they are long. Most hedge fund guys / fixed incomes(bonds) they tell false what they are doing. I  was initially followed hedge fund guys and  took their direction. and i took big losses. Never trust these buy guys. If they short they r long
Yeah. Also try to make money on an analiarist's upgrade and price "target". p.s. Analyst
"...as the former bond king said he is betting that rates will increase..." Uh-huh. "Up Next: Bill Gross predicts the Super Bowl."
I buy a stock when I believen in it,inTSla I don't believe so short it .
gamestonck, so the price will double?????
what a ***lol
Isn’t he behind the curve on Fed action? This is what they HAVE been doing for months — buying everything in sight.
No pun intended
So he is short in GME? Another reason to buy more
I think they mean he's long bonds but short the yields.
Umm, no
lol. ..nope
Nah...I believe he is short gov bonds...being that they move opposite rates/yields
well, fed inflation. US peasants will experience 10-15 on everything
hasn't he been vocally short bonds for like the past 5 years? claiming short of a lifetime?
ha... lmao! Right!
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