Bill Ackman, CEO of Pershing Square Capital Management, speaks at the Delivering Alpha conference in NYC on September 28, 2023.
Adam Jeffery | CNBC
Pershing Square’s Bill Ackman said Monday that he had covered his short position in long-term Treasury bonds because he believes a rapidly deteriorating economy would push down bond yields.
“The risk in the world is too great to short bonds at current long-term interest rates,” Ackman said in a post on X, formerly known as Twitter, on Monday morning. “The economy is slowing faster than recent data suggests.”
The billionaire hedge fund manager first announced his bearish stance on 30-year Treasury bonds in August, betting on higher yields due to “higher long-term inflation.” The 30-year Treasury yield has risen more than 80 basis points since late August, making Ackman’s bet profitable. Bond prices move inversely to bond yields.
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Yield on 30-year government bonds
Bond yields have risen recently, with the benchmark 10-year bond yield crossing the key 5% threshold after the Federal Reserve signaled it will keep interest rates higher for longer to combat inflation. Meanwhile, the economy and labor market have consistently exceeded expectations and kept yields high.
However, Ackman believes that will soon change as the economy begins to feel the lagging effects of the massive tightening measures implemented since March last year. The Fed has raised interest rates eleven times by a total of 5.25 percentage points, bringing the key interest rate to its highest level in around 22 years. A slowing economy typically leads to lower bond yields.
Military conflicts in the Middle East also increased insecurity. Ackman has commented on Hamas’ war against Israel as well as the war between Russia and Ukraine.
Fed Chairman Jerome Powell recently said inflation is still too high and slower economic growth will likely be needed to bring it down. Data has shown that while inflation remains well above the target rate, the pace of monthly increases has eased and the annual rate has fallen to 3.7% from more than 9% in June 2022.
JPMorgan Chase’s Jamie Dimon recently issued a stark warning about the dangers the world faces from multiple threats, saying this may be “the most dangerous time the world has seen in decades.”