The way I interpreted his explanation of the bond market is that he doesn't like Treasuries because he isn't being adequately compensated for holding a risk asset. In this case, he is definitely not long the 30yr bond and most likely has a steepener on in Treasury futures (probably long 5yr notes vs. short 30yr bonds). It seems that if one prefers to own an asset than Eurodollar futures in the 2007 and 2008 maturities are comparable to the long-end Treasuries without the low risk premium attached. It does seem like a very safe play at this point as he believes at some point the low risk premiums will expand very rapidly and it won't be pretty. That being said, PIMCO is still selling June 105-109 strangles in the 10yr options (probably short at least 50,000) but it is nowhere near their past short volatility positions in Treasuries. Gross is in the business not to blow up when risk premiums expand, he will leave that to the current LTCM's in the hedge fund biz.
Bond rally nearing an end?
- Thread starter gharghur2
- Start date
Mcurto,
"It does seem like a very safe play at this point as he believes at some point the low risk premiums will expand very rapidly and it won't be pretty."
Completely agree!
So it looks like he is capitulating, and rightfully so.
They must have technical analysts working for them.
Technically, Bonds are in a bear market, that's just getting starting to get noticed.
"It does seem like a very safe play at this point as he believes at some point the low risk premiums will expand very rapidly and it won't be pretty."
Completely agree!
So it looks like he is capitulating, and rightfully so.
They must have technical analysts working for them.
Technically, Bonds are in a bear market, that's just getting starting to get noticed.
Yes, I agree. He was saying something like we should get used to a flat yield curve.
With the FED recently trying to convince our banking system to get into shorter term maturities. I think he got the message. The foreign central banks will get stuck holding the bag. But Japan, I think, has already figured this all out.
I'm not sure its much of a change. I think the conclusion he is reaching is that you ought to be in short term treasuries - you aren't getting paid enough to either go further out on the curve or go for riskier bond classes. Its pretty much the same thing PIMCO has been saying since late last year.
He still thinks the Fed is done at 5 or 5.25 at the most.
That strangle they are doing trades at the Chicago Board of Trade, they are options on Treasury futures. Won't find its value on Yahoo Finance. You can find the settlement for the strangle by adding up the June 105 put and June 109 call settlements. Right now with futures at 106-10 its trading around 22 ticks. They began selling it much higher, they also leg this same strangle when we have enormous moves, selling calls as we rally 15 ticks and selling puts when we break 15 ticks (give or take a few).