The One Thing You Must realise About PIMCO’s Big Bet Against Treasuries

bill gross

The news that PIMCO is short US Treasuries prompted a lot of predictable howling today.

It is interesting, given how big PIMCO is, and considering that it comes as QEII winds down, and amid so much concern about the Federal debt.

But there is one thing to realise. Just because Bill Gross is short Treasuries, doesn’t mean he’s making some gigantic bet about the solvency of the US.

There’s nothing too special here. The Fed probably about to raise rates — that’s what the end if QE is, essentially, a rate hike. And in a rising rate environment, it’s logical to bet against bonds.

Although Gross talks about the inevitability of a US debt default, he tends to mean this outcome pretty liberally, and he includes ongoing dollar value destruction within his definition of default. As for this specific bet, there’s just nothing that special about it. As John Carney at NetNet notes, the Treasury-bearish view is pretty standard on Wall Street right now. Equating this bet with the notion that the US is doomed is just incorrect.