Gross' Pimco makes $8.1bn bet against US deflation

Bill Gross' Pimco, the world's largest bond manager, has made a $8.1bn bet the US will not suffer a decade of deflation similar to Japan in the 1990s.

The $8.1bn wager is the notional value of long-term derivative contracts tied to US CPI that Pimco's mutual funds entered into during the first half of this year, Bloomberg reports. Pimco's funds received $70.5m in up-front premiums under these contracts, known as inflation floors, in return for agreeing to pay investors should prices decline in the 10 years ending in 2020. "We think the possibility that the US goes 10 years with stagnant or falling prices is remote," Mihir Worah, the head of Pimco's real return portfolio management team, told Bloomberg. "The options were priced at...