Investing.com - Renowned investor Bill Ackman is placing significant wagers on a downturn in the value of 30-year US Treasuries. This strategic move serves as a safeguard against potential impacts from escalating long-term rates affecting stocks.
The founder of Pershing Square (NYSE:SQ) Capital Management sees this approach not just as a protective measure but also as an opportunity with high chances of success. His insights were shared via X, the social media platform previously known as Twitter.
According to Ackman's analysis, there will be an increased demand for Treasuries to cover current budget deficits and future expenditures, coupled with rising refinancing rates. Instead of directly shorting bonds, he has chosen to invest through options.
Despite expectations by some analysts that US long-term rates would remain low, Ackman anticipates these could rise due to structural changes leading to higher long-term inflation levels such factors include de-globalization trends and mounting defense costs among others.
From his perspective, long-term debt appears overbought when considering supply-demand dynamics. He believes it will be challenging for markets to handle the surge in issuance without experiencing substantially higher rates.
In terms of macro investments offering asymmetric payoffs with decent probability odds, he considers this strategy one worth pursuing even if investors didn't require hedging protection.
Acknowledging recent refunding debt sales weighing down the curve for durations exceeding ten years - $103 billion up from May’s $96 billion – including scheduled sales amounting to $23 billion in 30-year bonds set for August 10th
He suggests that should inflation maintain at around three percent rather than two percent; yields on these bonds could reach five-and-a-half percent compared to its current rate which was reported at four-point-one-nine percent during trading in Asia.
History provides examples where bond market adjustments have led to rapid repricing within weeks, and according to Ackman's analysis, we seem poised for similar circumstances now.