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 has hedged his bet against long-term government bonds as he expects investors to increasingly buy bonds as a safe haven amid growing geopolitical risks, most recently including the war between Israel and Hamas could.
“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. “We have covered our bond short.”
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 yields, so Ackman’s bet against bonds was essentially a bet on higher interest rates.
The 30-year Treasury yield fell 6 basis points to 5.01% on Monday following Ackman’s comments.
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Yield on 30-year government bonds
Bond prices have continued to fall and yields have risen recently, with the benchmark 10-year bond rate crossing the key 5% threshold. According to recent data, the economy and labor market have consistently exceeded expectations and kept yields high.
Ackman has been a vocal supporter of Israel following the Hamas attacks earlier this month, posting frequently about the conflict. Typically, rising global tensions push investors into government bonds for security reasons. This happened during the Russia-Ukraine war, but this has not been the case with recent tensions in the Middle East.
Economic risk
Ackman also added that he left the short sale out of concern for the economy.
“The economy is slowing faster than recent data suggests,” he wrote.
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 results in lower bond yields.
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 CEO 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.”
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Source : www.cnbc.com