Bill Gross on High-Yield and Why He's Shorting Bonds

The video discusses the complexities of yield and risk in the investment world, focusing on high yield bonds and their spreads. It explains how to calculate these spreads, considering defaults and recoveries, and compares them to Treasury yields. The interconnectedness of markets, especially when interest rates are low or negative, is highlighted. The video also covers shorting strategies and the use of derivatives like CDX in bond markets, emphasizing the potential for spread widening.

What is the primary risk associated with using high yield bonds as a proxy for sovereigns?

• High yield bonds have a fixed interest rate.

• High yield bonds are not affected by market changes.

• High yield bonds are less risky than sovereigns.

• High yield bonds may have higher default rates.

How are financial instruments like junk bonds and stocks connected when interest rates are low?

• They are connected only through government policies.

• They are interconnected and affect each other's pricing.

• They operate independently of each other.

• They are only connected during economic booms.

What does the term 'artificially priced' imply about high yield bonds?

• They are priced based on actual market demand.

• They are priced higher than investment-grade bonds.

• They are priced lower than their actual value.

• Their pricing is influenced by external factors, not just market demand.

What is the role of CDX in the bond market?

• CDX is an index used for trading high yield and investment-grade bonds.

• CDX is a stock market index.

• CDX is a type of high yield bond.

• CDX is a government bond.

What is the expected outcome when buying protection in the bond market?

• A guaranteed profit.

• A decrease in bond spreads.

• An increase in bond spreads.

• No change in bond spreads.