Bill Gross was on Bloomberg Television’s “InBusiness with Margaret Brennan” today to discuss the bond market, the U.S. deficit and European debt crisis. The number one issue we were interested in was whether Bill Gross is short on treasuries or not. Here is what he said:
“We are not. To a certain extent, it may be our fault because we have a category in terms of our monthly release that is called treasury or treasury related securities. It could be Treasuries, it could be agencies, it could be swaps which sophisticated bond investors know are entirely different from Treasuries so the extent that it shows up as a short then it’s almost entirely been in the swap category as opposed to the Treasuries. The Total Return Fund has had tens of billions of dollars worth of treasuries, to some extent in short-term Treasuries and bills and and collateralized repo. It has never been a question of Pimco in terms of the Treasury’s reputation and its potential to default. It has always been a question of value in terms of interest rates relative to other alternatives.”
This is a mind boggling response. We are not sophisticated bond investors, we are just a monkey. Pimco sold swaps which are “entirely different from Treasuries”. If they are entirely different from Treasuries, why couldn’t Pimco benefit from the 50 basis point rally in the treasury market? We feel like Gross is trying to distance himself from his “short the treasuries” call which was a total fiasco. If treasuries collapsed during past few weeks, we are sure Gross wouldn’t claim that “swaps are entirely different from Treasuries”.