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Bill Ackman, CEO of hedge fund management company Pershing Square Capital Management, said Thursday on X that long-term rates will continue to rise and that he remains short bonds.
Long-term rates, such as for the 30-year bond, BX:TMUBMUSD30Y, will further rise above the current 4.55%, he said at the platform formerly known as Twitter, late on Thursday.
This is due to the U.S. economy outperforming expectations, infrastructure spending contributing to economic growth and adding to the national debt — $33T and rising — and the recession predictions being pushed out beyond 2024, he said.
“The long-term inflation rate is not going back to 2% no matter how many times Chairman Powell reiterates it as his target,” he wrote. “It was arbitrarily set at 2% after the financial crisis in a world very different from the one we live in now.”
In today’s world, he said, there is no peace dividend, no long-term deflationary effects of outsourcing production to China; the power of workers and unions continues to rise, and their strikes for wage increases and other benefits could successfully add to inflation, he said.
Energy prices continue to rise, and not refilling the strategic petroleum reserve was “a misguided and dangerous mistake,” he said, adding that the U.S. must now refill the reserve as OPEC and Russia cut production and the green energy transition remains “incalculably expensive.”
Another issue Ackman sees is that the U.S. government continues to sell billions of bills, notes, and bonds weekly, as China and other superpowers, which historically were major buyers of U.S. debt, are now selling. “Imagine trying to do a massive IPO where the underwriter, insiders, and short sellers are all selling at once, competing to hit every bid on the way down while the analysts downgrade their ratings to ‘Sell’,” he wrote.
He also explained that he believes bond investors thought of the 4% rate as high because rates had not breached that level for almost 15 years. “When investors saw the ‘opportunity’ to lock in 4% for 30 years, they grabbed it as a ‘once-in-their-career opportunity,’ but today’s world is very different from the one they have experienced up until now.”
“The long-term inflation rate plus the real rate of interest plus term premium suggests that 5.5% is an appropriate yield for 30-year Treasuries,” he added. “(I) query whether 0.5% is a sufficient real long-term rate in an increasingly risky world.”