Bill Gross and Pimco, one the world's largest bond investors, are betting on low volatility moving forward. The company is wagering on the new neutral which relies on lower interest rates and low but steady global growth. Pimco's fund managers are actively selling options and taking large positions in interest-rate swaps in an effort to profit in a low volatility environment. As long as the Fed continues to hold the line, overall credit risk should remain extremely low and there will likely be a cap on volatility. After all, as low as the VIX has been, it's still running significant higher than realized volatility. Given how little the US markets are reacting to the situation in Iraq, it looks like Gross and Pimco may be on to something. (VIEW LINK)
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