Bonds, like men, are in a bear market.
— Bill Gross, January, 2018
There are two highly contentious assertions jammed into those eight words, both of which, if true, have far-reaching ramifications.
The notion that the great bond bull market has definitively come to an end is the subject of vociferous debate, but I’ve gotta tell you, bonds’ three-decade run only seems long in the tooth until you compare it to the bull market in “men” who, as a group, have been rallying since the actual Stone Age.
Sure, there have been intermittent pullbacks and periodic corrections (e.g., women’s suffrage) but it’s probably fair to say the #MeToo movement is one of the first real structural headwinds the centuries-old rally in men has faced. Analysts are torn, but historically speaking, being short “men” over long periods of time is a high risk strategy.
That said, I know one man who is definitely in a bear market and that man is Bill Gross – only not for the reasons he suggested men in general are a good short.
Bill has had a rough go of it on multiple fronts over the past couple of years. The transition from “Bond King” to “man who used to be Bond King” hasn’t been entirely seamless. It probably doesn’t help (from a psychological standpoint) that Bill’s crown now rests on the head of a man who, when he’s not channeling ‘Pac and/or Princess Leia by showing up at SALT in hologram form, is wandering around Sohn in a Joker costume pitching a Facebook/O&G ETF “pair trade” that’s just as risky as the clown suit he wore while pitching it.
Bill’s recent trials and tribulations include being on the wrong end of a spiteful Picasso heist perpetrated by his ex-wife and while that was some semblance of funny, there is exactly nothing funny about the following chart:
While no one seems to know exactly what happened there, what we do know is that Tuesday was the worst day for Gross’s Janus Henderson Global Unconstrained Bond Fund since inception.
That came amid the turmoil that rocked the Italian debt market.
But it wasn’t the selloff in BTPs that did Gross in. Rather, it looks like it might have been the safe haven bid triggered by the Italian fire sale that did the damage. Investors fled to U.S. Treasurys on Tuesday amid the chaos, sending 10Y Treasury yields tumbling 17bps, for the biggest rally since Brexit.
Those would be the same bonds that Bill says are in a bear market.
It’s worth noting that Gross made headlines back in 2015 (during the bund tantrum) for his bearish stance on safe haven German debt. Specifically, he called bunds “the short of a lifetime.” Well, 10Y yields in Germany fell below 0.20% on Tuesday, in another manifestation of the flight to safety.
“Investors should look for 3% plus or minus on the 10-year for the balance of 2018 [and] that level should ultimately force German Bunds to higher yields, perhaps 1%”, he wrote in March.
Yes, “perhaps 1%.” Or “perhaps” 0.19%.
One veteran trader I spoke to on Wednesday said that while there was no telling what caused Tuesday’s blowup, there’s a good chance some of the pain was tied to an implicit or explicit short vol. position.
Here’s a snapshot of the fund, for what that’s worth (it’s a bunch of short duration corporate exposure):
Gross declined to comment for Bloomberg’s version of the story and I imagine a full explanation isn’t forthcoming.
Coming full circle, yesterday’s rally in Treasurys might have put a dent in Bill’s bond bear market thesis, but his underperformance (the flagship fund’s peers enjoyed some of their best returns in years) proves he was right about there being a bear market in “men”.
Or at least in one man.