Bill Gross makes short bets on Treasuries, GameStop

New York

ONE-TIME bond king Bill Gross has been busy in retirement, shorting Treasury bonds, playing chicken with day traders on Reddit and even making a bundle on energy prices.

The Pacific Investment Management Co co-founder, who runs money for his charitable foundation, shared some of his trades in an interview Tuesday on Bloomberg Television.

Mr Gross said he bet against the 10-year Treasury through the futures market and remains short, anticipating a combination of rising commodity prices, a weaker dollar and stimulus-driven demand will spark inflation. "Inflation, currently below 2 per cent, is not going to be below 2 per cent in the next few months," Mr Gross said. "I see a 3 per cent to 4 per cent number ahead of us."

Treasuries are familiar territory for Mr Gross, 76, who once managed the world's biggest bond fund. The other wagers are more esoteric, though consistent with the kind of investing he did after leaving Pimco in 2014 following a feud with his partners.

Running the Janus Unconstrained Fund until retirement in 2019, Mr Gross often sold volatility, seeking to make money on mispriced options.

That's what drew him to the January frenzy in GameStop Corp. He described selling call options on GameStop, initially at strike prices of US$150 and US$200, and losing US$10 million as retail buying on Robinhood Markets helped drive the stock to almost US$400.

Mr Gross refused to fold and said he managed to book a profit of about US$10 million after exiting the trade when the shares finally tumbled. Now he's back in, selling call options at US$250 and US$300, meaning he could face losses if the stock, now trading close to US$210, surpasses those levels. "The volatility is super high," he said. "I think this is a perfect opportunity for options sellers, not buyers."

Mr Gross said he entered his wager against the 10-year Treasury when the yield, now about 1.6 per cent, was about 35 basis points lower.

Like others who have grown increasingly bearish on bonds, he predicts pressure on prices to rise as the recently passed US$1.9 trillion Covid-19 relief bill finds its way into an economy already primed to accelerate. "There's significant demand that is stored up, power that is stored up that can be unleashed if consumers want to go in that direction, and I think to a certain extent they will," Mr Gross said.

One market proxy for inflation, the 10-year breakeven inflation rate, climbed on Tuesday to the highest since January 2014. Mr Gross noted that commodity prices have surged by almost 40 per cent since bottoming last April.

The Federal Open Market Committee is all but certain to hold interest rates near zero at the conclusion of its two-day policy meeting on Wednesday.

Throughout the pandemic, investors desperate for yield have been prospecting in unconventional places. For Mr Gross, one such adventure was natural-gas pipelines. He said he bought some master limited partnership units last year, attracted by tax advantages and yields of 13 per cent to 14 per cent.

Mr Gross was also encouraged that Warren Buffett was making a similar bet. Gas prices have since taken off, buoyed by the oil market and accelerated by the shortages last month during the winter storm that paralysed Texas. BLOOMBERG