The Bond King doesn’t appear to be too keen on bonds these days, or at least those issued by the U.S. government.
Pimco’s Bill Gross reduced his exposure to government-related bonds in his $222 billion Pimco Total Return Fund in August, while slightly increasing the amount of corporate bonds in his fund, according data posted on Pimco’s website.
Gross’ timing may have been off, but the move appears to be working out. Initially, U.S. bonds enjoyed a strong rally in August, but they’ve since been selling off sharply in September on expectations that the Fed may raise rates sooner than expected. So should you follow the Bond King out of bonds?
According to some traders, the answer is yes.
“We expect the Fed to raise rates in the second quarter of next year,” said Chad Morganlander of Stifel’s Washington Crossing Advisors. “And the ten year should move way run advance of that,” added Morganlander, who also said he expects the yield on the 10- year bond to approach 3 percent by next year. Morganlander advised investors to buy bonds with shorter maturities and higher credit ratings.
On the technical front, the picture for fixed income is a little less clear, according to one noted technician.
“I’m smart enough to know that I’m not smart enough to pick a top in the bond market,” said Todd Gordon of Tradinganalysis.com.
Gordon noted that the 30-year bond has been in an uptrend channel for almost three decades. When securities are in uptrend channels, they tend to trade within a set range. According to Gordon’s chart work, based on where the 30-year is trading, it could continue to see more upside.
“That’s a massive uptrend,” Gordon added.
In other words, despite what the Bond King is doing, don’t bet against this bond rally ending anytime soon.