Tags: 5-year | short | Treasurys | Gross

WSJ: Many Investors Short 5-Year Treasurys, Opposing Pimco's Gross

By Dan Weil   |   Monday, 24 Feb 2014 07:27 AM

While Pimco Chief Investment Officer Bill Gross continues to recommend five-year Treasury notes, many investors are selling them.

Their rationale is that economic growth will accelerate, ultimately forcing the Federal Reserve to raise short-term interest rates, The Wall Street Journal reports. The five-year Treasury yield stood at 1.54 percent early Monday.

"I believe the Fed will be challenged by faster-than-expected growth, and the five-year notes will feel the pinch,'' Mark MacQueen, portfolio manager for Sage Advisory Services, tells The Journal.

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Apparently he's not alone. Short interest in five-year Treasury futures has jumped by a net 85,009 contracts so far this year to total 103,137 as of Feb. 11, according to Jeffrey Young, U.S. rates strategist at Nomura Securities International. Each contract has a notional value of $100,000.

Gary Pollack, head of fixed-income trading at Deutsche Bank's private wealth-management unit, tells The Journal he expects the five-year Treasury yield to reach 2.25 percent by year-end.

But Gross is still bullish.

"Four- and five-year Treasurys . . . will be anchored by the Fed's zero-bound policy rate for the next few years," he writes in his February commentary on Pimco's website.

As for the overall Treasury market, many investors are uncertain of its direction after the rally so far this year.

"The market is trying to figure out where we are. The question still remains was this a weather-induced [economic] slowdown or something more," Thomas Roth, senior Treasury trader at Mitsubishi UFJ Securities USA, tells Bloomberg.

"We've priced in a pretty good slowdown. The market will probably need more bad data to go to lower yields."

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