Wednesday, April 22, 2015

Bill Gross: Star investor should bet against Bunds – SPIEGEL ONLINE

Bill Gross is considered the “bond king”. In the market has his word weight. If calculated Gross calls to bet against German bunds, so this is an event.

German bonds with a ten-year term, called in the jargon as “collar,” Gross called Tuesday on Twitter as “The short of a lifetime”. By “short” understand financial professionals a bet on falling prices. Such bet offers for large, therefore the chance of life.

Only the timing to be right, added the star investor. Only when the European Central Bank (ECB) have completed their economic stimulus bond purchases, which they believe interest rates in the euro area artificially low, the bet is to be recommended.

Federal bonds in the euro crisis more popular than ever because they are considered safe investments in uncertain times. Since the ECB has started its bond purchase program a few weeks ago, the demand for the securities has grown again.

This is reflected not only in rising prices for these securities, but also in the declining returns they provide investors. Increases the price of a fixed-rate loan, it automatically reduces the yield. If the government issues new bonds, it must also offer lower interest rates investors accordingly.

While the federal government had a year ago are still paying 1.5 percent interest when he borrowed fresh ten-year money, there were just still 0.05 percent on Monday. Germany gets the loan practically given.

Gross’ recommendation initial success

Great apparently believes that this can not go on forever. He expects bond yields rise when the ECB’s flood of cheap money decreases. The demand for German bonds is expected to decline accordingly especially when the problems in the euro zone – the weak growth or the future of Greece – should be solved. Then the desire of investors would subside for safe investments and loans in return Germany would again bring more interest.

Gross is famous for his many years of investment success in the bond market. Last year he made headlines with his sudden change from the asset manager Pimco, where he had long managed the world’s largest bond fund, for competitors Janus Capital. He now manages a much smaller bond portfolio.

In the financial markets, it is speculated that Gross’ urgent recommendation in terms of government bonds could not be entirely altruistic, because the star investor is actively on the market and it would possibly affect his favor the course of the papers.

If true, Gross should ever won a small success: Since its betting recommendation, the yield on ten-year government bond yields rose again. On Wednesday morning, they were at 1.1 percent.


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