Bill Ackman has had a good summer, with his bet on 30-year Treasury bonds paying off in dramatic fashion over the past few weeks.
In lieu of taking a victory lap, Ackman opted to press his case during an appearance Thursday at CNBC’s Delivering Alpha conference, where he discussed his reasoning behind the bet and his view that yields have further to climb — while insisting the trade hadn’t been as big a slam dunk as it might seem.
The yield on the 30-year Treasury bond
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has risen sharply since Ackman first mentioned his firm’s position publicly during a post on X, the social-media platform formerly known as Twitter, in early August, as a summertime selloff accelerated.
According to Dow Jones Market Data, the yield on the long bond has risen 87.5 basis points since the start of the third quarter on July 1, leaving it on track for its biggest quarterly increase since 1987 when trading for the quarter ends on Friday. Bond yields move inversely to prices, so rising yields mean prices are falling. It stood at 4.707% in recent trade.
The hedge-fund manager, whose Pershing Square Capital Management just had its “best five years in the history of the firm,” said he expects structurally higher inflation and the U.S. government’s need to issue more bonds to fund a yawning budget deficit to keep the pressure on yields.
“Our view is, you’re not being paid enough to enter into a 30-year contract with the U.S. government at a fixed price,” Ackman said.
This could potentially drive the 10-year Treasury yield
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above the 5% level in the next few weeks, Ackman said.
“In relative short term, there are reasons why rates can move a lot,” Ackman said. “We’re going to have a government shutdown, and we’re going to have a data shutdown. We have the worst technical environment in our lifetime in terms of supply of bonds and buyers of bonds.”
As for inflation, he said he expected “structural inflation to be 3% to 4% for the long term,” which is why the Trump administration should have seized the opportunity to lock in low rates by issuing more long-dated debt, Ackman half-joked.
“[Former Treasury Secretary] Steve Mnuchin should have issued a lot of 30-year, 50-year, 100-year paper at those rock-bottom rates,” Ackman said.
Rising bond yields have created problems for stocks, sending the S&P 500
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lower in September. The index is on track to book its fourth straight weekly decline on Friday.
While his interviewer, CNBC’s Scott Wapner, congratulated the hedge-fund chief on his timely bet — “you nailed it,” Wapner said at one point — Ackman insisted that the bet hadn’t paid off as handsomely as one might expect, since the firm has been in the trade for 18 months.
“If we had nailed it we would have made more,” he said, adding that the firm made more off a bet on short-term rates.
