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

Stock MarketsMar 16, 2021 03:25PM ET
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© 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.

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

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Comments (22)
Jp Perth
Jp Perth Mar 17, 2021 2:24AM ET
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" Musk is a little devil " most obvious statement of the year goes to....bill gross.
John Thompson
John Thompson Mar 17, 2021 12:04AM ET
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operation twisted economic fed policy still trying to sell the world its bottle of 2% snake oil inflation policy...  go get ***** fed
peter neal
peter neal Mar 16, 2021 8:36PM ET
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Either way no matter what Gold is going up.
Silver House
Silver House Mar 16, 2021 8:11PM ET
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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.
Matt Brackley
Matt Brackley Mar 16, 2021 8:11PM ET
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all the fed has to say is they intend to....they wont have to then
Joel Schwartz
Joel Schwartz Mar 16, 2021 7:03PM ET
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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.
Gold Fever
Gold Fever Mar 16, 2021 7:03PM ET
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That is definitely a possibility of what is about to happen over the next few years
CFG fdez
CFG fdez Mar 16, 2021 6:09PM ET
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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
Arthur Santos
Arthur Santos Mar 16, 2021 6:09PM ET
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Sure. And I don't get a GLIMPSE of what you're saying. Use a speller for God's sake
Benjamin McIntire
Benjamin McIntire Mar 16, 2021 5:37PM ET
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Makes no sense why would you short bonds if you think the fed will start buying them soon?
Francesco Ammirata
Francesco Ammirata Mar 16, 2021 5:37PM ET
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because if 10 years yields rise to 2-3%, bond price will go to around 100 from current 130
Zach Lohman
Zach Lohman Mar 16, 2021 5:37PM ET
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I think he’s suggesting they won’t be able to suppress rates even when they try. It was confusing to say the least.
Mo Mo
Mo Mo Mar 16, 2021 5:37PM ET
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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.
Gold Fever
Gold Fever Mar 16, 2021 5:37PM ET
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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.
Peemil Nicho
Peemil Nicho Mar 16, 2021 5:30PM ET
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tweet 2018
Max German
7Max7 Mar 16, 2021 5:29PM ET
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lol buy bonds crazy just crazy what idlot buys bonds just on start of a crisis
Amine Fourali
Amine Fourali Mar 16, 2021 5:16PM ET
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No real strategist will tell you his strategy....
Kevin McCarthy
Kevin McCarthy Mar 16, 2021 4:58PM ET
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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.
Max German
7Max7 Mar 16, 2021 4:58PM ET
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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
Gold Fever
Gold Fever Mar 16, 2021 4:58PM ET
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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...
Ez McSquare
Ez McSquare Mar 16, 2021 4:50PM ET
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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
Rod McLean
Rod McLean Mar 16, 2021 4:50PM ET
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Yeah. Also try to make money on an analiarist's upgrade and price "target". p.s. Analyst
Connecticut Yankee
A_Jaundiced_Eye Mar 16, 2021 4:24PM ET
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"...as the former bond king said he is betting that rates will increase..." Uh-huh. "Up Next: Bill Gross predicts the Super Bowl."
Tjibbe van der Werff
Tjibbe van der Werff Mar 16, 2021 4:19PM ET
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I buy a stock when I believen in it,inTSla I don't believe so short it .
Tjibbe van der Werff
Tjibbe van der Werff Mar 16, 2021 4:11PM ET
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gamestonck, so the price will double?????
Jacob Steinschlag
Jacob Steinschlag Mar 16, 2021 3:51PM ET
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what a ***lol
Steve Buchanan
Steve Buchanan Mar 16, 2021 3:47PM ET
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Isn’t he behind the curve on Fed action? This is what they HAVE been doing for months — buying everything in sight.
Michael Galassini
RoyHobbs Mar 16, 2021 3:47PM ET
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No pun intended
Renzo Francesqui
Renzo Francesqui Mar 16, 2021 3:46PM ET
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So he is short in GME? Another reason to buy more
Brett Smith
Brett Smith Mar 16, 2021 3:44PM ET
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I think they mean he's long bonds but short the yields.
Goldenear Beyondmass
Goldenear Beyondmass Mar 16, 2021 3:44PM ET
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Umm, no
Robert Cencarik
Robert Cencarik Mar 16, 2021 3:44PM ET
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lol. ..nope
Jack Miller
Jack Miller Mar 16, 2021 3:44PM ET
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Nah...I believe he is short gov bonds...being that they move opposite rates/yields
Mark Jannetty
Mark Jannetty Mar 16, 2021 3:40PM ET
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goes exactly opposite harry dent. dent is long the 30 yr
Notvery Goodathis
Peteymcletey Mar 16, 2021 3:39PM ET
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well, fed inflation. US peasants will experience 10-15 on everything
taylor jason
taylor jason Mar 16, 2021 3:36PM ET
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hasn't he been vocally short bonds for like the past 5 years? claiming short of a lifetime?
TOP NOTCH
TOPNOTCH Mar 16, 2021 3:36PM ET
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ha... lmao! Right!
 
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