In a surprising move, renowned bond bear Bill Ackman has made the decision to close his bet against 30-year Treasury bonds. Ackman, the head of Pershing Square, stated on social media platform X (formerly Twitter) that he believes Treasury yields are poised for a turnaround after a recent ascent that caused global market uncertainty.
Acknowledging the current level of risk in the world, Ackman confidently declared, "We covered our bond short." This decision is a departure from his earlier stance, where he projected exploding U.S. budget deficits and anticipated factors that would push inflation well above the Federal Reserve's 2% target. In fact, just last month, Ackman shared that he wouldn't be surprised to see the 30-year yield reach an impressive 5.5% in the near future.
However, recent observations have led to a change of heart for Ackman. He believes that the economy is slowing faster than what recent data suggests. This sentiment aligns with the common trend of investors seeking the security of fixed cash flows through bonds during times of economic slowdown, rather than holding stocks.
While details surrounding his decision remain scarce, Ackman's shift in strategy reflects an astute reading of the market conditions. By closing his bet against Treasury bonds, he hopes to capitalize on new opportunities that may arise as the market continues to evolve.
Rising Yields and the Impact on Bond Prices
Late last month, Bill Ackman, a prominent investor, predicted that the yield on the 10-year Treasury note could quickly rise past 5%. His prediction was proven correct as the yield briefly topped 5% on Monday for the first time since 2007.
Since then, yields have slightly decreased, with the 10-year Treasury note currently at 4.910% and the 30-year bond at 5.032%. Some speculate that Ackman's comments may have helped support bond prices, which tend to move inversely to yields.
The increase in Treasury yields has been occurring for several months due to various factors. These include investor concerns about uncertain U.S. fiscal and monetary policies, as well as a desire for a higher term premium.
Federal Reserve Chair Jerome Powell recently addressed speculation that rising inflation expectations are the main driving force behind the increasing yields. Instead, Powell attributed the rise to a growing term premium. The effects of rising bond yields have been felt in the U.S. stock market, which has experienced a decline since early August.