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Bill Gross cites Italy for loss, calls press coverage 'ridiculous'

Bill Gross said the loss his fund suffered this week was the result of a widening gap between U.S. and German bond yields triggered by the crisis in Italy. He also took a swipe at press coverage of the decline, calling it “ridiculous.”

“The strategy has been to be short the German bund and long U.S. Treasurys,” Gross said. “That was the basis for the bad day and the bad trade.”

Gross has been betting the gap would narrow, but this week the extra yield investors demand to hold 10-year debt from the U.S. rather than Germany reached the most since 1989. His Janus Henderson Global Unconstrained Bond Fund (JUCIX) fell 3% Tuesday, its biggest one-day decline in almost four years.

“Italy affects German bunds because ultimately if Italy decides to leave the EU the consequences are severe,” Gross said.

These investments offered better returns than the broader fixed-income world in recent years, but the risk/reward equation leans heavier on risk.
September 28

The yield premium that 10-year U.S. notes offer over equivalent German debt has climbed to more than 250 basis points, from less than 200 at the end of 2017. Safe haven buying on Tuesday helped send the yield on Germany’s 10-year note to just 0.19%, its lowest intraday level in more than a year, before closing at 0.26% for its fifth-straight decline.

In the interview, Gross argued that the widening of the U.S.-German spread “has to reverse.”

Gross said press coverage suggesting he wasn’t paying attention to his fund was unfounded.

“The Janus Unconstrained has close to $2 billion [in assets], of that there is a significant amount of my own money in it,” Gross said. “From a standpoint of my own self-interest, why would I go to sleep or take a vacation because my entire portfolio is on the line?”

Bloomberg News