The two ‘Kings of Bonds’ have different views on how the end of QE2 on June 30, 2011 will affect Treasuries.

QE2 is one of the biggest forces in the Treasuries market. In all, the program will call for the Federal Reserve buy $600 billion of Treasuries from November 2010 to June 2011. 

Bill Gross of PIMCO, dubbed the ‘King of Bonds,’ is bearish about the impact. He thinks QE2 has massively propped up the prices of Treasuries. When the Fed stops buying, no one may be big enough to step up to fill the void. Treasuries, therefore, are set to fall.

Meanwhile, Jeffrey Gundlach, the other contender for the title of ‘King of Bond,’ thinks the opposite. He views QE2, a form of electronic money printing, from an inflationary perspective, according to Business Insider.

Inflation is bad for Treasuries investors because it makes the fixed nominal value of the Treasuries worth less in real terms.

When the “blatantly inflationary” policy of QE2 stops, Gundlach said, Treasury investors will be relieved.  He said the anticipation of the end of QE2 explains the recent run up in Treasury prices and drop in yields.

Indeed, the market seems to so far to support Gundlach’s view; since April 11, 10-year Treasury yields have dropped from 3.59 percent to 3.13 percent on May 25.