As the U.S. bond market has recently surged, Bill Gross has made significant gains on his interest rate bets in late October, and he has also revealed opportunities lurking in a more mysterious corner of the market.

Bill Gross, the former king of bonds, is one of the big winners in the recent sudden surge of U.S. bonds. Although this former head of the world's largest bond fund may now be just a peripheral figure in the bond market with fluctuating performance, his interest rate bets in late October have been very profitable.

As usual, Gross announced on social media platforms that he had placed a bet in a relatively obscure market corner, involving a large purchase of short-term interest rate futures that closely track expectations of the Federal Reserve's policy path. As traders increasingly bet on the magnitude of the Federal Reserve's rate cuts, these securities have also risen sharply.

Gross confirmed through a spokesperson that he had bought 3,000 contracts for March 2025 tied to the Secured Overnight Financing Rate (SOFR) with a three-month term. According to calculations, based on Friday's prices, Gross may have already made more than $4 million in profit.

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Gross's bets have performed particularly well in recent days. On Wednesday, the SOFR futures contract for March 2024 rose to its highest level since September 1, with trading volume reaching the second-highest this year.

Before this week's rise, data showed that hedge funds' net long positions in SOFR futures reached a historical high. At the same time, in the spot bond market, a weekly Treasury customer survey conducted by JPMorgan Chase since 1991 found that the most active investors in the market are bullish on the bond market at the highest recorded proportion.

Last month, weak non-farm employment data and continued cooling CPI data brought good news for bond bulls, and dovish remarks from Federal Reserve Chairman Powell and other officials also helped to push up bond prices. Data shows that traders currently expect the Federal Reserve to cut interest rates by about 1.1 percentage points in 2024, with the first cut expected to come in May.

Gross earned the title of "King of Bonds" while working at Pacific Investment Management Company (PIMCO). He co-founded the company in the early 1970s. At the peak of the PIMCO empire, Gross's assets under management exceeded $300 billion, and the PIMCO Total Return Fund, which he managed, once became the world's largest mutual fund.

Nearly a decade after being ousted from the company, Gross's views still arouse great interest among people, whether they are those seeking practical investment skills or simply schadenfreude.Gross stated that he has discovered opportunities lurking in a more mysterious corner of the market: mortgage real estate investment trusts (REITs). First, let's explain REITs, which are securities investment tools that generate income by investing in real estate projects. Purchasing REITs allows ordinary investors to share in the profits and appreciation of real estate assets, while also offering higher liquidity and a broader range of investment options.

REIT investment strategies are typically divided into two types: equity and mortgage. Equity REITs invest in commercial or residential properties to generate rental and lease income. Mortgage REITs, on the other hand, make profits by buying and selling loans.

On social media, Gross highlighted two mortgage REITs: Annaly Capital Management (NLY) and American Capital Agency Corp (AGNC), and predicted that both should benefit from the decline in benchmark bond yields, resulting in returns of 14% and 16% for 2024, respectively.

However, Gross warned that the stocks of these companies performed poorly in 2023, with Annaly down 14.3% and American Capital Agency Corp down 14.8%. Therefore, they may be subject to some tax-loss selling before the end of the year, where investors sell some of their holdings at a loss to offset part of the capital gains tax they must pay in 2024.

Importantly, Gross is not the only one bullish on mortgage REITs. In a mid-September report, UBS upgraded its rating for Annaly and AGNC from neutral to buy.

"Due to the Fed's exit from the MBS market being factored in, MBS spreads are at historical highs, and book value has suffered significant losses, we believe the industry's total returns are set for a strong and sustainable period," UBS stated.