BILL GROSS: It’s Time To Lever Up

MYLES UDLAND

SEP. 12, 2014

REUTERS/Jim Young

speak at the Morningstar Investment Conference in Chicago, Illinois, June 19, 2014.Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management Company (PIMCO), wears sunglasses as he arrives to

Bill Gross, founder and co-CIO of PIMCO, told Bloomberg on Thursday that, “It’s probably time to lever in a mild sort of way.”

Gross told Bloomberg that investors should expect to have, “the ability to borrow short and and to lend long, much like banks do.”

Gross expects this trade to available to investors for the next three to five years.

By saying that investors should be able to “borrow short” and “lend long,” Gross is basically saying that yields for shorter-dated Treasury bills should rise faster than yields on longer-date debt. In other words, the prices for shorter-dated Treasuries should fall faster than prices on longer-dated bonds.

So you should sell short-dated bonds and use those proceeds to buy long-dated bonds. 

This chart from Wells Fargo shows the firm’s expectations for bonds of varying maturities, which reflects the core idea Gross is talking about.

Wells Fargo