Traders went from confusion to opportunity as Gross exit sank in
As bond traders began what they thought would be a quiet day last Friday, a simple headline crossed their screens: “William H. Gross joins Janus Capital.”
“The question was, ‘Is it THAT William H. Gross?'” said Lou Brien, a veteran market strategist at DRW Trading, a 22-year-old trading firm in Chicago active in futures markets.
As the news sank in, fixed income traders jumped. Several said they first tried to figure out the biggest holdings of the Total Return Fund, which had $222 billion under management before Gross bolted.
Then, they began selling assets that they believed to be the biggest holdings of the fund, including U.S. Treasuries, Treasury Inflation-Protected Securities (TIPS) and high-yield bonds, anticipating massive redemptions.
The Total Return Fund saw $23 billion in outflows in September, with its worst day of withdrawals in its history on Friday. Pimco declined to comment for this story.
Interviews with more than a dozen bond traders and managers about what went on in their minds and in the markets after the news of Gross’s departure broke, paint the fullest picture yet of what happened in various markets in its aftermath.
“This event will go down as the single-largest movement of capital as a result of one person’s move from one firm to another,” said David Barse, chief executive of New York-based Third Avenue Management, which had about $13 billion under management at July 31.
To be sure, Gross’s exit doesn’t appear sufficient to threaten the stability of the entire financial system. While the reaction in the markets was swift and some of its effects linger even now, these market sources said, it appears to have been largely contained.
Several of Pimco’s rivals said they saw immediate inflows as investors made that trade. “We have definitely had institutional assets in (our) direction,” said Chris Orndorff, senior portfolio manager at Western Asset Management Co. in Pasadena, California which manages $470 billion.
If redemptions at Pimco were to increase, Orndoff said, “this could be the beginning of a pretty ugly move” in the bond market. “They could be coming in successive waves,” Orndoff said.
Source: Reuters- Traders went from confusion to opportunity as Gross exit sank in
