PIMCO’s Gross ‘Crying in His Beer’ on Anti-Treasury Bet

With yields now hitting record lows, Gross says his stance againt Treasuries was a ‘mistake’

August 30, 2011
PIMCO Chief Bill Gross PIMCO Chief Bill Gross

Bill Gross, who manages the largest bond fund in the world at PIMCO, said that emptying the fund’s portfolio of U.S. Treasuries earlier in the year was a “mistake” that left him “crying in his beer.”

In a Monday interview in The Financial Times, Gross acknowledged that betting against Treasuries was an error. Earlier in the year, he dumped U.S. Treasuries from the Total Return Fund while warning that increasing inflation made Treasuries a poor choice. He was quoted in the report saying, “When you’re underperforming the index, you go home at night and cry in your beer. It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo-hoo.”

In January the yield on 10-year Treasuries was 3.5%. Gross repeated his caveats in June, but by August investors had returned in a flood to Treasuries, despite the downgrade in the U.S. credit rating, in a search for safe havens from turbulent markets. The yield fell still further to a 61-year low under 2%.

While Gross has begun to replace the bonds he sold off earlier in the year, and has softened his stance against them—in large part due to Fed Chairman Ben Bernanke saying he’d likely keep interest rates extremely low for two years—he has his work cut out for him to catch up to the benchmark Barclays Capital Aggregate bond index. Currently the Total Return Fund ranks a lowly 501 out of 589 bond funds in the same category.

Gross was quoted saying, “It’s not necessarily a flip-flop, as we don’t own tons of Treasuries, but it’s a recognition that the U.S. and developed economies are near the recessionary dividing point.” He still believes that long term, the value of sovereign bonds will decrease under governmental financial repression.

Note from Reeve-  Bill Gross has been one of the best bond managers in history, in my opinion.  I am watching the fund closely, but I am a believer that in the long term his history of lead-the-pack expertise will win out.