Bill Gross Warns Bond Investors

NEW YORK — Bill Gross, one of the bond market’s most renowned investors, is leaving Pimco, the investment firm he founded and with which his name has been effectively synonymous, for rival asset management firm Janus Capital Group, Janus said on Friday. Here is what sources are telling news agencies this morning

The yield on the benchmark 10-year U.S. Treasury bond has risen by more than 84 percent from May to early September, one of the most violent and rapid increases on record. This spike has caused severe convulsions in the bond market, leading many investors to wonder how long the torment can last. But as Guggenheim's Scott Minerd notes, if history is our guide, the answer is that it may be over soon. Investors would be wise to remember that “soon” is a period of time, not a matter of degree.

Regular readers know that "bond king" Bill Gross, who runs the world's biggest fixed income fund at PIMCO, is not the biggest fan of the Federal Reserve's quantitative easing programs.

Asset managers building big stakes in corporate bonds could be left hanging as banks cut back on providing liquidity, increasing the risk of chaotic selloffs should interest rates spike from record lows. Big U.S. companies, including Verizon and Apple, have been selling record numbers of bonds to seemingly insatiable demand, as unprecedented stimulus from central bank bond purchases makes borrowing favorable for big corporations and as investors stretch for higher returns.

June has been a brutal month for bonds but particularly in the high-yield space, where issuance has cooled after a record run. Junk bond volume has slowed to $7.1 billion this month, the slowest pace since December 2011 and about one-fifth the average monthly total previously in 2013, according to Dealogic.

The phrase “this time is different” doesn’t usually spark very positive reactions. But I don’t care because there’s one thing about the market these days that makes me think that something is strange when compared to previous bond market sell-offs. If you follow me on twitter you will have noticed that lately I have been talking a lot about asset swaps (ASW). This is a pretty technical concept but I will try to be as straightforward as possible.

Add France to the list of eurozone countries with negative short-term interest rates. The Wall Street Journal reports France Joins Germany to Sell T-Bills At Negative Yield France joined a handful of euro-zone countries Monday in selling short-term debt at negative interest rates as investors seek alternatives to expensive German and Dutch debt.

Robert Hallberg submits:Interest rates are so obviously extreme in the opposite direction from the fundamentals and with record deficits, debts and unfunded liabilities, continued low interest rates will not be sustainable for much longer. Interest rates are already at 50 year lows and with a continued weakening dollar, there is only one direction for interest rates to go and that is up.