Bonds finally ready to crack? 

by Mike Larson   04-25-08

When the nation’s most prominent bond investor, the man who is managing the world’s largest bond fund, stops believing in U.S. government debt, it’s time to stand up and take notice.

Bill Gross, the blackjack player-turned-bond king, whose words alone can spark rallies and selloffs in the $43-trillion bond market, has actually started betting against U.S. Treasury Bonds!

Gross’ Pimco Total Return Fund recently reported a position in government debt of NEGATIVE 18%. In other words, the fund is using derivative positions to “short” Treasuries. And this is the most bearish Pimco has been since at least 2000, according to Bloomberg.

Gross is betting on the same thing I’ve been warning you about for some time — that bond prices will fall and interest rates will rise. The market’s recent action suggests that’s just what we’re going to see ...

Long bond futures prices were hovering in the low 120s earlier this year. They have since fallen to around 116 — and a few days ago, they breached a critical uptrend that dates all the way back to mid-2007.

Meanwhile, the benchmark 10-year Treasury yield has risen from a low of about 3.31% to 3.75% recently.