Janus Capital’s Bill Gross published his latest monthly investment outlook on Wednesday.
Gross brought up the call he made in April that shorting German 10-year bunds — or betting that their prices would fall and yields would rise — was “the short of a lifetime.”
He had clarified that investors should wait until the end of the European Central Bank’s asset purchase program before they sell.
The following day, German 10-year bund tanked as yields doubled, and continued to spike higher for the next few days.
In his latest monthly investment outlook, Gross said the call “was well timed but not necessarily well executed.”
“Still, it was a prime example of opportunities hatched by the excess of global monetary policy — zero based policy rates and tag team match quantitative easing programs which continue to encourage malinvestment in financial assets as opposed to the real economy. Interestingly though, central banks and their respective economies seem to be on different time cycles.”
And this difference in monetary policy is the big opportunity that investors can arbitrage, or profit through the price differences:
“The ECB for instance, is still committed for over a year’s worth of 700 billion Euro asset purchases, while the U.S. Fed is chomping at the bit to raise policy rates in late 2015. Partially because of these differences, there remain significant disparities in global asset prices that potentially can be successfully arbitraged. 10 year Treasuries for instance still trade at a 175 basis point premium to 10 year Bunds versus a long term historical average of 25 basis or so. A purchase of Treasuries and a sale of Bunds allows for not only a potential capital gain if the spread narrows, but a yield pickup while the Rip Van Winkle investor potentially waits for a probable outcome.”