Billionaire investor Bill Ackman has made a bold bet against 30-year U.S. Treasurys, anticipating a rise in long-term rates and using it as a hedge against the impact on stocks. Ackman, the founder of Pershing Square Capital Management, believes that persistently high inflation rates and other factors will cause 30-year Treasury yields to hit 5.5% “soon.”
Ackman stated his position on social media platform X, saying that this investment offers “reasonably asymmetric payoffs” with greater potential for upside gains than downside risk. He explained that he implements these hedges by purchasing options rather than shorting bonds outright.
The timing of Ackman’s bearish call coincided with ratings agency Fitch downgrading the U.S.’s long-term rating, which reflects concerns about the growing fiscal deficit. Ackman argued that if U.S. inflation stays around 3%, instead of the expected 2%, it would lead to higher Treasury yields.
The investor pointed to several factors contributing to his stance, including de-globalization, higher defense costs, the energy transition, growing entitlements, and political divisiveness. He also highlighted the desire of China and other countries to decouple financially from the U.S.
Ackman expects the ending of yield curve control in Japan to make Japanese government bonds more appealing compared to U.S. Treasurys. Japanese investors are currently the largest foreign buyers of U.S. Treasury bills.
“The best hedges are the ones you would invest in anyway even if you didn’t need the hedge,” Ackman emphasized, signaling his confidence in this bet. He believes that long-term Treasurys are overbought and that an increasing supply of Treasurys, coupled with quantitative tightening, will result in higher rates.
It is worth noting that Ackman has shifted his investment strategy away from vocal activist short-selling campaigns after facing substantial losses in the past. However, he had successful bets against mortgage loan companies Fannie Mae and Freddie Mac before the financial crisis.
This move by Ackman against 30-year U.S. Treasurys adds to the ongoing debate about the future direction of interest rates and inflation in the United States. The outcome of this bet will be closely watched by investors for its potential impact on the broader market and the economy.