I’ve been getting questions about what happens when the Fed wraps up QE2 — related especially to Bill Gross’s public view that interest rates will shoot up.
OK. Gross has famously sold his entire Treasuries holding and is in fact short them. He is positioned for a fall in Treasury prices.
If you believe that it is obvious that rates will spike as soon as QE2 ends, you have to ask why investors aren’t moving out of US debt now in anticipation; you don’t have to believe in efficient markets to believe that totally obvious gains or losses will be anticipated.
I\’m sorry? We\’re using the fact that the man running the world\’s largest private sector bond fund has moved out of Treasuries in anticipation as evidence that people aren\’t moving out of Treasuries in anticipation?
Clearly I\’m not bright enough to gain a Nobel.
Also, if you think that US interest rates are being held down by the fact that in some sense the Treasury hasn’t had to go to the market lately, since the Fed is buying debt — although the Fed isn’t actually buying it direct from Treasury — consider the case of Greeece. Greece isn’t going to the market at all these days, since it’s getting all its funding from the bailout package.
The bailed-out nation sold €1.625bn (£1.43bn) of 13-week government bonds on Tuesday, but investors demanded a yield, or return, of 4.1pc to hold the debt – a quarter of a percentage point more than in a similar sale in February.
That means Greece pays a higher rate to borrow for three months than Germany pays for three decades, at 3.8pc.