Last week we talked about Bill Gross and his trade of the decade. Coming Soon: Trade Of The Decade? Also known as, shorting the 10-year German Bund. Now, another big time money manager jumps on the bandwagon Gundlach Weighs 100-Times Levered Bet Against German Bonds
Sounds like a sure bet……..only if it was that easy!!!
In all of my life, I have yet to meet a “sure bet”. At the same time, I would be the first to admit that the trade above looks good on paper.
Here is my primary concern. Two massive bond managers are promoting this trade to mainstream investors around the world. Why? And since everyone already knows about it, what can go wrong?
Quite a few things. What if the Bund trades flat for the next 10-years…….what if today’s negative yield goes even lower……..what if the EUR/USD exchange rate surges back to 1.5. Impossible? Nothing is impossible when it comes to financial markets. And while you can hedge away the risks above, hedging is not free.
In other words, the trade above might not be as attractive as most investors believe. Plus, the same line of thinking (massive short position) in a 10-year treasury has backfired big time over the last 1.5 years.
A better trade might be……going long the 10-Year US Treasury. As outlined here before, and with any luck, it might follow the trajectory of the German Bund above.
