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'Bond King' Bill Gross reportedly made millions betting on the direction of interest rates as investors changed their Fed policy outlook

Dec 1, 2023, 22:19 IST
Insider
Bill GrossJim Young/Reuters
  • Legendary bond investor Bill Gross made around $4 million from a recent bet on interest rates, Bloomberg reported.
  • Gross reportedly purchased contracts tied to the SOFR, a benchmark lending.
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Legendary bond investor Bill Gross reportedly made millions from the latest rally in bonds, via bets on futures contracts tied to a short-term lending rate that have rallied in price as investors adjust their expectations for Federal Reserve policy.

The PIMCO co-founder and "Bond King" made over $4 million from betting on the Secured Overnight Financing Rate, a short-term lending benchmark for dollar-denominated loans, according to analysis from Bloomberg. The bet is tied to a recession call that the famed investor announced in a post on X in October.

Gross purchased 3,000 three-month March 2025 contracts tied to SOFR in late October, a spokesperson for Gross confirmed to Bloomberg. The report estimated Gross' total profits so far based on the price for that contract, which has risen from around $95 in late October to trade around $96.45 on Friday.

Gross' bet is ongoing, meaning those profits haven't been realized yet. His media team did not immediately respond to Business Insider's request for comment.

The reported gains come amid a stunning rally in the US bond market, with prices notching their best monthly performance in nearly 40 years in November.

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Bond prices, which move in the opposite direction as bond yields, rallied last month as markets dialed back expectations for more Fed tightening. November's move in bonds was in stark contrast to October, when the market suffered one of the worst sell-offs in history as investors reacted to the outlook of higher for longer rates from Fed chief Jerome Powell.

But now, investors see a 48% chance rates could head lower by the first quarter of next year, up from just a 14% chance priced in a month ago, the CME FedWatch tool shows.

Wall Street commentators are also growing more bullish on asset prices, with some forecasting that the Fed could shift to full-on monetary easing next year. That could involve as many as six interest rate cuts in 2024, ING Economics estimated, predicting the fed funds rate to ease to about 3.83% by the end of next year.

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