PIMCO's Bill Gross is Betting Against the Market's End of ZIRP Prediction, Likes Front End of Treasury Curve (Video)

PIMCO's Bill Gross is making an interesting bet against the end of ZIRP. He's betting that the Fed won't tighten by 2015 and is investing in the front end of the treasury curve. He said this on Bloomberg TV on 10/1/2013 (watch below). Gross also said it would be "catastrophic" for bonds, credit transactions and asset prices around the world if the U.S. defaulted on its debt, but he said it was unlikely to happen ("that's the last option").

Here's what Bill Gross specifically said about his bet on the front end of the curve (3, 4 and 5-year Treasuries):

What we have done is to buy and hold treasuries but at the front end of the curve.

What we think is the most dependable aspect of policy going forward, whether it's the debt ceiling, whether it's the cr resolution, whether it's the Fed going forward, is the fact that the Fed will probably stay put in terms of 25 basis points, not talking taper here, but stay put in terms of the policy rate for the next two or three years.

Now what the market is interpreting is that the Fed will raise interest rates by 100 basis points by December of 2015 and by another 100 basis points by 2016. We don't believe that. We say bet against it, and what does that mean? That means basically buy front end treasuries. Buy 3, 4, 5 year treasuries that incorporate that mispricing in terms of Fed policy rates going forward.

What we believe at PIMCO is that the forward guidance in terms of keeping that policy rate low under certain conditions that probably won't be met in terms of unemployment and the like, that the policy rate is the key. That you should buy treasuries, yes, but buy them on the front. Don't buy 30s, don't buy 10s, because those are inflation sensitive. Buy something that the Federal Reserve is going to "guarantee" for the next several years.

Source: Bloomberg.com

Related: PIMCOs El-Erian: There's Value in the Front End of the Curve, Fed Policy is Highly Experimental - Bloomberg TV (9/20/2013)

Also read this: Recession Looms If Treasury Uses Tools to Prevent a Default

"The result: $175 billion less in government spending during November alone, said Goldman’s Alec Phillips in Washington."
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