Ackman Doubles Down on Bond Short That’s Still Flawed

Some seven weeks ago, hedge fund investor Bill Ackman laid out his rationale for shorting long-term US bonds, and I took exception.

Since then, 30-year Treasury yields are up about 34 basis points and grazed the highest level in 12 years, and Ackman has taken to X — the platform formerly known as Twitter in which he’s an investor — to double down on his earlier call. But while I’ve been humbled by the moves of recent weeks, I still think that his logic is flawed and that if he makes any more money on the trade, he may be right for the wrong reasons.

Consider Ackman’s latest musings on the theme:

I believe that long-term rates, e.g, 30-year rates, will rise further from here. As such, we remain short bonds through the ownership of swaptions.

The world is a structurally different place than it was. The peace dividend is no more. The long-term deflationary effects of outsourcing production to China are no more. Workers and unions’ bargaining power continues to rise. Strikes abound, with more likely to come as successful walkouts achieve substantial wage gains.

Energy prices are rising rapidly. Not refilling the SPR was a misguided and dangerous mistake. Our strategic assets should never be used to achieve short-term political objectives. Now we must refill the SPR while OPEC and Russia cut production.

The green energy transition is and will remain incalculably expensive. And higher gas prices will raise inflationary expectations. Just ask your average American. They see the prices at the pump and in the grocery store and don’t believe inflation is moderating.

Our national debt is $33 trillion and rising rapidly. There is no sign of fiscal discipline by either party or by the presumptive presidential nominees.

I’ve quoted less than a third of the note, but you can read the whole thing here. The upshot, as Ackman sees it, is that the long-term inflation rate won’t go back to 2% “no matter how many times” Federal Reserve Chair Jerome Powell “reiterates his target.”

That’s an interesting theory except that’s not why yields are moving higher. Breakevens and inflation swaps, which provide the purest estimates of how the market is thinking about inflation, have barely ticked up since Ackman made his call on Aug. 2. What’s driving nominal yields higher is the real yield.

Scrutinizing 30 Year Old Bond Yields