The man who was for a long period the undisputed king of bonds, Bill Gross, this week made a bold call on the German 10-year government bond, calling it "the short of a lifetime":
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Gross: German 10yr Bunds = The short of a lifetime. Better than the pound in 1993. Only question is Timing / ECB QE— Janus Capital (@JanusCapital) April 21, 2015
Gross, who runs Janus Capital, sees the price of German 'Bunds' as too high and thinks betting against the bund is a good way to make money.
Last Friday, the yield on the 10-year Bund fell to a record low of 0.049 per cent - yield moves inversely to price - before climbing back to 0.165 per cent on Thursday.
Despite the rise, it's still at incredibly low levels compared with the 10-year US Treasury, which is yielding 1.9577 per cent..
The rally in German bonds was sparked by a run to safety as the region's economy hit the brakes and has accelerated since the European Central Bank began purchases of public-sector bonds (quantitative easing or QE) in early March as part of its trillion-euro stimulus program.
Whether or not Gross proves correct with his bet, time will tell, but we've put together four other interesting and market-moving shorts.
Short selling - the practice of betting on a price dive for companies, commodities or currencies - has a long history, going back to the 1929 US stock market crash.
Investors bet that that they can repay borrowings by selling stock and then buying it again once the price drops.
While short selling is risky, its rewards can be great, precisely because the act of selling itself can precipitate favourable conditions. Here are some famous examples:
George Soros and the British pound
On the so-called Black Wednesday of 1992, fund manager George Soros and his partner Stanley Druckenmiller made roughly £1 billion betting against the British Pound.
Soros had bet that high inflation meant England would prevent the pound sterling from "shadow tracking" the German deutschmark. Having borrowed huge amounts of sterling to buy deutschmark and French francs, Soros sold off his pounds.
The pound's value tumbled, which meant he paid back, in effect, far less than he borrowed. Soros became known as "the man who broke the Bank of England".
Jim Chanos and Enron
Another hedge fund manager, Jim Chanos, realised Enron's share price was too good to be true in the early 2000s. He became aware that Enron was using an accounting practice that allowed "front-loading" of profits, making the company appear more valuable than it was. "They were gaming the shareholders," he told Business Insider. Enron's share price collapsed from $US90 in August 2000 to zero by January 2002.
Although it is not known how much cash Chanos made from the deal, he has said that he identified the short by realising that Enron's return on equity was 7 per cent when, by his estimate, it had to be 9 per cent to be viable.
Closer to home, Chanos adopted a short position on iron ore miner Fortescue Metals Group in recent years, on the basis that its large debts make it vulnerable to commodity price falls.
John Paulson and the US housing market
John Paulson was one of the few to pick the US sub-prime mortgage crisis. "In 2005, our firm became very concerned by weak credit underwriting standards, excessive leverage amongst financial institutions and a fundamental mis-pricing of credit risk," he told a US congressional hearing into hedge funds in 2008.
Paulson put together a deal along with Goldmans Sachs and bet against the housing market, when many analysts of the day thought that house prices could never drop.
In the event, prices could go down, and the sub-prime mortgage collapse triggered the global financial crisis and Paulson walked away with a fortune, estimated to be $US15 billion for his fund and $US3-4 billion personally. At the time it was believed to be the biggest one-year payday in Wall Street history.
Paul Tudor Jones II and the US stock market
In the months before the 1987 stock market crash, Jones predicted a huge decline in equities. "It will be earth-shaking; it will be sabre-rattling," the 32-year-old trader said in a documentary, Trader, made at the time. He described the likely market drop as an "Acapulco cliff dive".
Jones earned roughly $100 million that year, largely from that shorted position, giving his investors a 200 per cent return.
