Bill Gross: German bunds are 'the short of a lifetime'
Bund buyers beware: Bill Gross is coming.
The Janus Capital bond guru believes that German debt is representing a huge opportunity—for short sellers. The surge in the 10-year version of the security and its tumbling yields have ripened them up for a bet in the other direction, Gross said on Twitter: (Tweet This)
Bunds were yielding 0.94 percent in Tuesday morning trade, up 19.8 percent on the session but down nearly 83 percent year to date.
Traders have been piling into the nation's debt ever since European Central Bank President Mario Draghi announced his intention to commence U.S.-style quantitative easing, a debt-buying program aimed at keeping yields low and goosing the financial markets with liquidity.
"It's just a question of when," Gross said during an interview on CNBC's "Power Lunch." "It's certainly a trade that doesn't cost you anything in the short term, because it doesn't yield anything and it has the ultimate potential of a 10 or 15 percent (return) over a one- or two-year period of time."
Gross runs the $1.5 billion Janus Global Unconstrained Bond Fund. It has returned 2.05 percent year to date, outperforming the Barclays U.S. Aggregate Bond index by 0.41 percentage points and placing it in the 21st percentile of Morningstar rankings. The fund is also well ahead of the three-month LIBOR rate.
He said the easiest way for investors to cash in on the bund short would be to buy his fund. Another way is to sell German Treasury futures "and take advantage of it over time."
Gross' call is similar to one made last week by Doug Kass, head of hedge fund Seabreeze Partners Management.
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"Near zero to negative sovereign debt yields in Europe represent the bubble of all investment bubbles, dwarfing even the Nasdaq bubble of 16 years ago," Kass wrote in an April 15 note to clients. "Mark my words, I will make a fortune shorting these bonds at some point in time—probably much sooner than later. And I promise all of you that I will figure a way you all can consider (depending on your time frame and risk appetite) putting on the short European fixed-income trade."