Bill Ackman has had a successful summer with his bet on 30-year Treasury bonds. He recently discussed his reasoning behind the investment and his belief that yields will continue to rise. Despite his confidence, Ackman emphasized that the trade was not as easy as it may seem.

The yield on the 30-year Treasury bond (BX:TMUBMUSD30Y) has experienced a sharp increase since Ackman publicly announced his firm’s position in early August. This rise in yield has been part of a larger selloff in the bond market during the summer.

Since July 1, the yield on the long bond has risen by 87.5 basis points, marking its largest quarterly increase since 1987. Currently standing at 4.707%, rising yields indicate falling prices.

Ackman cited structural inflation and the US government’s need to issue more bonds to cover a significant budget deficit as factors driving these increasing yields. He argued that investors are not being adequately compensated for entering into a long-term contract with the government at a fixed price.

Despite his recent success, Ackman remains cautious and recognizes the complexity of the market. Nevertheless, his firm, Pershing Square Capital Management, has achieved its “best five years in the history of the firm.”

In summary, Bill Ackman’s bet on Treasury bonds has paid off, and he continues to believe that yields will rise further due to inflation and the government’s budget deficit. He advises caution when considering long-term investments in fixed-price bonds with the US government.

The Impact of Rising Bond Yields on the Market

Bill Ackman, a prominent investor, has warned that the 10-year Treasury yield (BX:TMUBMUSD10Y) could surpass the 5% mark in the coming weeks. Ackman believes that there are several factors contributing to this potential increase in rates.

Firstly, he points out that the upcoming government shutdown and data shutdown will have a significant impact on interest rates. Additionally, Ackman mentions that the current market environment is unfavorable due to an imbalance between the supply of bonds and the number of buyers.

To make matters more complicated, Ackman predicts long-term inflation to be around 3% to 4%. He suggests that the Trump administration missed an opportunity to take advantage of low rates by issuing more long-dated debt. In an almost half-joking manner, he mentions that former Treasury Secretary Steve Mnuchin should have considered issuing 30-year, 50-year, or even 100-year bonds while rates were at historic lows.

The rise in bond yields has already affected the stock market, leading to a decline in the S&P 500 (SPX) in September. In fact, the index is expected to record its fourth consecutive weekly decline.

Despite CNBC’s Scott Wapner applauding Ackman for his well-timed investment, Ackman admits that the bet did not yield as much profit as anticipated. While the trade has been ongoing for 18 months, Ackman believes there is still room for improvement and points out that the firm made more profit from a bet on short-term rates.

In conclusion, Bill Ackman’s insights shed light on the potential consequences of rising bond yields on both interest rates and the stock market. The possibility of the 10-year Treasury yield surpassing 5% should be taken seriously by investors.

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