SCHQ - Here's why Bill Ackman is shorting 30-year Treasuries

2023-08-03 06:15:50 ET

Billionaire investor Bill Ackman's hedge fund Pershing Square Capital Management is betting against 30-year U.S. Treasuries, calling it a hedge on the impact of higher long-term rates on stocks as well as a "high probability" standalone bet.

"There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them," Ackman posted on social media app X. "We implement these hedges by purchasing options rather than shorting bonds outright."

He said if long-term inflation is 3% instead of 2%, the 30-year Treasury yield ( US30Y ) could reach 5.5% soon. "There are many times in history where the bond market reprices the long end of the curve in a matter of weeks, and this seems like one of those times."

Ackman warned that inflation could rise further, given "de-globalization, higher defense costs, the energy transition, growing entitlements, and the greater bargaining power of workers."

The billionaire noted that long-term Treasury bonds look overbought. "With $32T of debt, large deficits and higher refinancing rates, an increasing supply of such Treasuries is assured."

When coupled with quantitative tightening, Ackman said: "It is hard to imagine how the market absorbs such a large increase in supply without materially higher rates."

The Treasury just increased the size of longer-term debt sales and will continue expanding auction sizes to align with mounting borrowing needs. The move pushed yields higher, with the 30-year Treasury yield ( US30Y ) up 4.20% on Wednesday - the highest close this year.

While Ackman did not reference Fitch's downgrade of U.S. debt, the agency's rationale included similar concerns - fiscal deterioration and a growing debt burden .

More on the bond market

• JPM: 10-yr Treasury yield to drift lower by 2023-end
• Hedge Funds Are Shorting Treasuries En Masse
• Risk Of Another Financial Crisis Is High And Rising

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