Former bond king of PIMCO, Bill Gross sees historic opportunity to short 10 year bund. He is a very well-known bond market veteran, who over the years at PIMCO generated higher return for investors. However, waning performance in later days resulted in leaving the organization and joining Janus, another bond market fund. As of now he is managing no constraint bond fund there, which so far has generated little more than 2% beating Barclay’s benchmark by 0.16% so far this year.
However we would like to differ with Gross this time around as this venture of shorting the bund could be high risk affair.
Why?
- European Central Bank’s asset purchase program will be keeping the yields on German government security for very long time. Which makes this a risky venture as of now. Swiss 10 year yields tell us, that yield might remain depressed for long.
It is true, that bunds are at risk of rising inflation that might push yields higher. Yields might even move higher once the program at ECB expires.
So why not short it then at the right time, going with Mr. Gross?
It’s not good old days anymore with the bund.
- Germany now stands one of the strongest country in the world with impressive economic strength. So if one has the ability to pay back lenders it is Germany. We might even doubt US and UK in this regard.
- German bunds appeal as the safest of the benchmark, which will keep attracting money should there be turmoil and changes in the structure of Euro zone.
We agree with the idea, that lending money to governments at near zero rates hardly makes sense but think bund may not be the ideal instrument to go short even if inflation comes back in Euro zone.
The material has been provided by InstaForex Company – www.instaforex.com