Bill Ackman, Pershing Square Capital Management CEO, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.
Adam Jeffery | CNBC
Pershing Square’s Bill Ackman revealed Monday that he had covered his short position in long-term Treasurys, as he believes a fast-deteriorating economy would suppress bond yields.
“There is too much risk in the world to remain short bonds at current long-term rates,” Ackman said in a post on X, formerly known as Twitter, Monday morning. “The economy is slowing faster than recent data suggests.”
The billionaire hedge fund manager first disclosed his bearish position on 30-year Treasurys in August, betting on elevated yields on the back of “higher levels of long-term inflation.” The 30-year Treasury yield has risen more than 80 basis points since the end of August, making Ackman’s bet profitable. Bond prices move inversely with bond yields.
30-year Treasury yield
Bond yields have surged lately, with the benchmark 10-year rate topping the key 5% threshold, after the Federal Reserve signaled that it will keep benchmark rates higher for longer to fight inflation. Meanwhile, the economy and labor market have consistently outperformed expectations, keeping yields elevated.
However, Ackman believes that’s about to change as the economy started to feel the lag effects from the massive tightening measures undertaken since March of last year. The Fed has raised rates 11 times for a total of 5.25 percentage points, taking the benchmark rate to its highest level in some 22 years. A slowing economy typically leads to lower bond yields.
Military conflicts in the Middle East also added to the uncertainty. Ackman has been commenting on Hamas’ war on Israel as well as the Russia-Ukraine war.
Fed Chairman Jerome Powell recently said inflation is still too high and lower economic growth is likely needed to bring it down. Data has shown that while inflation remains well above the target rate, the pace of monthly increases has decelerated and the annual rate has slowed to 3.7% from more than 9% in June 2022.
JPMorgan Chase‘s Jamie Dimon recently issued a stern warning about the perils the world faces from multiple threats, saying this may be “the most dangerous time the world has seen in decades.”
