Bill. Gross, Founder and Chief Investment Officer of Pacific Investment Management. The 64-year-old bond fund manager has a resounding title around the world, "the king of bonds".

PIMCO was originally the investment arm of CPIC, but later became an independent fund company. Five years later, Gross took on the firm and began his storied career as a bond investor.

For 20 years, starting in '87, Gross has achieved an ROI of close to 10%, reaching a staggering 9.5%. In a very volatile bond market, this yield is simply unbelievable. Attracted by this rate of return, PIMCO's capital has grown to a staggering $2 trillion by '08, while the global bond market is only $15 trillion.

He is not very tall, and his appearance is very ordinary. The only bright spot is probably the two unusually thick eyebrows, so thick that they seem to be painted, and with the equally thick beard on the corners of his mouth, it always gives people a solemn and honest feeling.

But this feeling is a complete delusion, and as the "king of bonds", Gross has a moody temper. Within Pacific Investment Management, he is an out-and-out tyrant, and anything that does not meet his wishes is completely purged from the trading room, including speaking loudly in the trading room.

"It shouldn't be, it shouldn't!"

At this time, Gross sat in his office, looking at the Bloomberg terminal on the desktop, and the picture showed the yield change chart of the 10-year US Treasury bond. The sudden drop from a yield of 4% to a yield of 3.5% not only confused the entire market, but also made Gross very puzzled.

A decrease in yields means an increase in the price of the bond itself. For Gross, who is short long-term Treasuries, this is not a small blow, according to his personality. It is necessary to get to the bottom of the problem and ask the truth.

"Will it be at the next FOMC meeting, the market expects interest rates to be lowered. Now that the economic situation is not good, emerging countries have generally implemented huge investment plans to stimulate economic growth, and in the face of generally low global interest rates, the government intends to further reduce interest rates in order to recover the economy as soon as possible. ”

In order to find out the specific reason. Gross had to make an exception to call in a few senior traders during trading hours to discuss the volatility on the market, and the above words were analyzed by a senior trader.

"A 50 basis point change looks like a lot, but it's still nothing for the size of the Treasuries. Personally, I prefer the preservation of capital in some emerging countries. In addition to Japan, China, Brazil, India and other emerging countries with huge foreign exchange reserves are the big buyers of government bonds in the market. Perhaps these countries have stepped in and raised the price of this variety of government bonds. ”

Another trader said eloquently. Because the U.S. Treasury is guaranteed by national credit and taxes, as long as the U.S. exists. There is no risk in cashing, so it is one of the favorite investments of large amounts of money that are averse to risk. And those emerging countries have accumulated a large amount of foreign exchange through a low exchange rate policy, and if these funds want to preserve their value, investing in US Treasury bonds is an excellent choice.

"But if the interest rate is lowered again, it may enter a liquidity trap!"

Another trader immediately retorted, "The nominal interest rate is 1.5%, although it is still some way from a negative real rate." But it is already infinitely close to zero interest rates. If interest rates are lowered under such circumstances, the market may enter a liquidity trap. ”

The so-called "liquidity trap". It refers to a state in which the interest rate level is reduced to a very low level for a period of time, and the market's sensitivity to interest rate changes also decreases, and even if the interest rate is lowered again, investors will not increase investment and consumption, and the monetary policy will be completely ineffective.

In the case of a liquidity trap, monetary policy, which relies on adjusting interest rates, is no longer able to stimulate the economy. The only thing that can be relied on is fiscal policy.

"Will it be a new round of QE?" A trader asked weakly.

"It can't be!"

As soon as he finished speaking, several voices retorted in unison. When the man saw this posture, he shrunk his neck, not daring to say anything more.

Gross looked at the questioner, his brow furrowed unconsciously. A little dissatisfaction rose in my heart.

"The Fed's usual response would be to announce the QE target and the size of the funds to be used, and then slowly absorb bonds in the market over a year or even years to raise the target rate to expectations. The reason for this is to eliminate the uncertainty caused by expectations, and on the other hand, to avoid unnecessary cost increases due to excessive price fluctuations. ”

Glancing at the trader again, Gross said lightly.

"And what are the remaining possibilities?"

The traders discussed for a long time, but still could not find a reason to convince everyone. Among them, emerging countries are most likely to buy US bonds on a large scale. However, for Pacific Investment Management, the so-called emerging countries are not much of a concern.

"I thought of a possibility!"

Gross pondered for a moment, then suddenly said, "Is it possible that the hedge fund industry is making inroads into the bond market?" You know, their entire industry has been hit hard lately, and in this case they urgently need new investment points, and for Treasuries, the risk is much smaller than those derivatives of theirs. Even if it's only 1%, it's a lot higher than the revenue of their industry as a whole. ”

"Even short-term safe-haven investments are far better than having investors withdraw their capital. Surely one will ask, why can't it be those Eurodollars or other industrial funds? I think that in this case, those Eurodollars are more inclined to arbitrage in the exchange rate market, and for industrial funds, now is the time for big acquisitions and expansions, and they should not easily give up such a good opportunity. ”

It has to be said that Gross's analysis makes a lot of sense, but there are still a lot of things that don't go logical.

"First of all, do hedge funds have that much money? I have a big doubt about that. Also, I don't think you understand why the hedge fund guys are choosing 10-year Treasuries instead of one-year or three-year or even five-year Treasuries, which are more liquid and more suitable for liquidation than 10-year Treasuries. ”

One trader was unceremonious about the lack of clarity in Gross's analysis.

Pacific Investment Management is a giant in the market, and the opponent it faces is either a rival of the same magnitude or a behemoth like a country, so they must find out the situation of the opponent before formulating a strategy. Traders were not satisfied with Gross's explanation.

Gross glanced at it, clearly catching the confusion in the eyes of the other traders, and it was clear that they must have similar thoughts in their hearts, although they didn't say it.

"You're not wrong, but there's another explanation!"

Instead of being asked, Gross explained lightly, "Before that, the 10-year Treasury bond, that is, the forward interest rate, had deviated far from the fundamentals, and I believe everyone has such a consensus." In this case, going short is a good option. Even if you return to the normal price range, the profit on the price difference is quite substantial. It was this situation that led to the influx of hedge funds into the 10-year Treasury market, as they needed outperformance more than ever. But the yield that should have risen has fallen at this time, and there should be a related opponent who is taking over their sell-off, and this fund is very likely to be the target of many hedge funds. ”

"According to the gambling nature of hedge funds, they will not give up in this situation, and I don't expect hedge funds to pour into the US Treasury market until 3%. But after breaking through 3%, the two sides are very likely to decide a winner. Prior to this, I had already passed the gas with other large bonds, and they all said that there was no large-scale takeover of the 10-year bond holdings. I believe that with my friendship, the authenticity of this news should be unmistakable. If I didn't guess, it was supposed to be an encirclement operation. ”

Gross said this, with an unfathomable smile on his face. When the traders saw it, they knew it in their hearts.

"Bill, did you hear something?"

A trader asked tentatively, even more uneasy in his heart. According to Gross's stubborn personality, if he did hear something, he would not go to the trader again. And now that he's doing it, traders can't guess whether it's an investigation or something else. If it's the former, those traders who answer incorrectly are in trouble.

"No, I've only heard part of it, but I'm not sure yet."

Shaking his head, Gross did not admit it, "You also know that Soros and I are good friends, and he was designed once before the Porsche acquisition in Germany. This time, according to him, this is a trap he gave to others, but I don't know whether the other party has taken the bait or not. ”

"What?"

Hearing this, the traders still do not understand. If, according to Gross, the unusual price fluctuations in the 10-year Treasury market are not due to other reasons, but rather a trick set by Soros on a certain opponent, then it would explain why it is so abnormal.

Although there are still many mysteries unsolved, the hearts of the traders at Pacific Investment Management are beginning to come alive, "Bill, what are we going to do?" ”

"With mental calculation or unintentional, we are naturally on the side of the winner!"

Gross replied with a sinister smile. (To be continued......)

PS: Thank you book friend Xiaoqi for the miracle of civilization, poison you ten thousand times, book friend 121229134210304, Shi Huangtian, Jiangnan Liu Feiyan for voting for the monthly ticket! Thank you for your support, although this time is in a hurry, but the author will still try his best to write a book, and strive not to disappoint everyone~