Billionaire investor William Ackman on Wednesday said his hedge fund Pershing Square Capital Management has placed a bet against U.S. 30-year Treasuries, calling it both a hedge on the impact of higher long-term rates on stocks and a good standalone bet.
"We are short in size the 30-year T," Ackman wrote on messaging platform X, formerly known as Twitter. He argued that if long-term inflation is 3% not 2%, the 30-year Treasury yield could rise to 5.5%, adding "and it can happen soon." On Wednesday, the yield on the 30-year Treasurys climbed to 4.16%, the highest close of the year.
"We implement these hedges by purchasing options rather than shorting bonds outright," Ackman wrote.
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Ackman said higher defense costs, energy transition and the greater bargaining power of workers all point toward higher inflation. The Federal Reserve has raised interest rates aggressively to curb inflation and signaled last month that it is keeping its options open after having raised rates by a quarter point to their highest level since 2001.
Ackman, once one of Wall Street's most voluble investors who cemented his reputation as an activist investor by pushing for changes at companies ranging from Chipotle Mexican Grill (NYSE:CMG) to railroad Canadian Pacific (NYSE:CP), has recently used the social media platform to opine on economic policy and presidential politics.
On Wednesday, he wrote: "There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them." In 2020 Ackman was among a small number of investors to call the COVID-19 crisis early and put on a hedge that earned his fund proceeds of $2.6 billion early in the year.
"The best hedges are the ones you would invest in anyway even if you didn't need the hedge," Ackman wrote. "This fits that bill, and also I think we need the hedge."
He remarks on X were made after rating agency Fitch on Tuesday downgraded the U.S. government's top credit rating, a move that drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago. Ackman didn't address the Fitch move in his posting.
A spokesman for Ackman didn't respond to a Reuters request for additional comment. Traders' immediate response to the Fitch downgrade was to embark on a safe-haven push out of stocks and into government bonds and the dollar.
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