Market bubbles are dangerous when they burst, but they're no picnic for investors who make ill-timed bets that the party's over. Just ask Pimco's Bill Gross, manager of the Total Return Fund, the planet's biggest bond fund. In February, he sold all the Treasuries in the fund and compounded the bet with derivatives. He now admits that it was a "mistake," via The Wall Street Journal.
It's easy to see why. Treasury prices have soared since February, which means that yields have dropped sharply. The yield on the benchmark 10-year Treasury Note, for instance, settled at 2.28% yesterday, down from as high as 3.75% at one point in February. As short-term rallies in Treasuries go, that's about as potent as it gets. Thanks to ongoing economic challenges this year, the popularity of safe-haven Treasuries has soared… again.
