Billionaire investor and founder of Pershing Square Capital Management Bill Ackman has closed short positions in long-term United States Treasuries.
Imminent US Recession in Q4
The prominent hedge fund manager decided to take this step due to the state of the economy of the nation. Seeing that the U.S. economy is slowing down faster than data had earlier suggested in addition to the challenges encountered at regional banks, Ackman believes that a recession is imminent in the fourth quarter (Q4).
“There is too much risk in the world to remain short bonds at current long-term rates,” Ackman wrote in an X post.
Similarly, Bill Gross, the former Chief Investment Officer of Pacific Investment Management Co., or Pimco, took to the X app to encourage his followers to “invest in the curve” on bonds. Notably, bonds have been recently challenged by a selloff. Just last week, the 10-year US Treasury Yield hit the highest levels that it last saw 16 years ago. Precisely, the government-issued bond surged by more than 5%. Equally, the 30-year bonds also surged by approximately 5.2%.
Consequently, risk-on assets like equity, stock, bonds, and cryptocurrencies were negatively impacted by the move. This was expected because an increase in Treasury bond yields is synonymous to a fall in Treasury bond prices. The recent development is a crucial factor that is forcing top investors like Ackman to pivot.
Expert’s Take on US Treasury Yields
Many market observers are still of the opinion that there would be more yields, triggered by a high base rate and an expectation that bond supply will increase to more than 6%. Gross and Ackman are on the other side of the fence, convinced that the most appropriate time to scale back their bets on yields rising further is now.
Per a statement by Gross, “’Higher for longer’ is yesterday’s mantra.”
Professor Jeremy Siegel of the Wharton School at the University of Pennsylvania shared the same sentiment as Gross and Ackman.
“The higher long-end rates are tightening conditions without the Fed raising short-term rates. It seems Powell has been very successful at getting unanimity and no dissent, and the chorus from recent Fed officials hinted for another pause,” Siegel explained.
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