Billionaire investor Bill Ackman says he is shorting 30-year Treasuries

Billionaire investor Bill Ackman said he is betting against 30-year U.S. Treasuries as a hedge against the impact of long-term interest rates on stocks in “a world of sustained 3% inflation.”

Ackman, the founder of Pershing Square Capital Management, also said he is “short in size” on the 30-year U.S. Treasury bond because it is “a high-probability stand-alone bet.”

In a post on X, the social media platform formerly known as Twitter, Ackman said he believes this is one of the few macro investments that “still offers reasonably asymmetric gains” — where the potential for upside gains is greater than downside risk.

“We implement these hedges by buying options rather than shorting bonds outright,” Ackman said late Wednesday. “There are many times in history when the bond market repeats the long end of the curve in a matter of weeks, and this seems like one of those times.”

The hedge fund manager’s bearish comments come a day after rating agency Fitch downgraded the US’s long-term rating to AA+ from AAA, drawing ire from the White House and underscoring serious concerns about the widening US fiscal deficit.

Ackman argued that if US inflation is 3% over the long term instead of 2%, 30-year Treasury yields could hit 5.5% “and that could happen soon.”

US inflation stood at 3% in June, while the yield on 30-year Treasuries hit 4.2% – the highest since early November.

“I have been surprised at how low US long-term interest rates have remained in the face of structural changes that are likely to lead to higher levels of long-term inflation, including de-globalization, higher defense costs, the energy transition, growing rights and greater bargaining power of workers,” said he.

Ackman pointed to several factors, including China’s and other countries’ desire to financially decouple from the United States, growing concerns about American governance, fiscal responsibility and political division — the last three issues prompting the latest Fitch downgrade.

He also expected that the end of yield curve manipulation in Japan would increase the relative appeal of Japanese Treasuries compared to US Treasuries. Japanese investors are currently the largest foreign buyers of US Treasuries.

The Bank of Japan unexpectedly loosened its yield curve controls on 10-year Japanese government bonds on Friday, promising greater flexibility in allowing rates to rise to 1% from the current 0.5%. The move was an adjustment to maintain the long-standing, ultra-easy monetary policy stance.

“I have also been puzzled as to why (the US Treasury) has not been funding our government at the longer end of the curve in the face of significantly lower long-term interest rates,” Ackman said. “This doesn’t look like sensible term management in my opinion.”

Ackman said long-term Treasuries also appear to be overbought.

“With $32 trillion of debt and large deficits as far as the eye can see and higher (refinancing) rates, an increasing supply of (Treasury’s) is assured,” he said. “When you couple new issuance with (quantitative tightening), it’s hard to see how the market absorbs such a large increase in supply without significantly higher rates.”

Ackman said in March that he will no longer participate in vocal activist short-selling campaigns, a practice he engaged in that led to one of the most colorful battles in Wall Street history, including a five-year battle against Herbalife, which ended with massive losses in 2018.

The billionaire investor shorted mortgage companies FannieMae and FreddieMac in 2007 before the Great Financial Crisis, which turned out to be successful bets.

“The best hedges are the ones you would invest in anyway, even if you didn’t need the hedge,” he said of his call against 30-year Treasurys late Wednesday. “This fits that bill and I think we need the hedge too.”