Why Did Bill Ackman Short Bonds, Again?

Bill Ackman is no stranger to making headline news on his contrarian bets but his decision to short bonds has left some scratching their heads.

The move by the Pershing Square CEO shouldn’t be taken lightly, though. It was just a few years ago that he made a relatively small bet against the bond market that turned into a 100x winner, and he’s at it again.

Let’s uncover what he and his investment team might have spotted to warrant such a bet.

Why Did Bill Ackman Short Bonds?

The headline reason why Bill Ackman shorted bonds is that he believes yields will climb higher and stay elevated for longer. He decided to short 30-year Treasuries on expectations that yields will climb to 5.5% and inflation will stay above 3% for the foreseeable future. Is he right?

When we look back to the 1970s, inflation persisted for much longer and stayed much higher than most expected at the time. When the inflation genie gets out of the box, it’s hard to put back in as Paul Volcker can attest. Almost a half century ago, he needed to take drastic actions as the Chairman of the Federal Reserve to hike interest rates all the way to 20% in order to crush inflation.

Ackman may not see rates going that high again but he does forecast long-term inflation rates will stay elevated for some time.

His argument is that structural changes are in effect that won’t easily be reversed. These include increased government spending on entitlements, higher negotiating power of unions, increased defense sector costs, a reversal of the globalization trend, and the move to electric and renewable energy systems.

Combine all those forces together and Ackman sees a dreary future for those hopeful that rates will return to the ZIRP policy of the 2010-2020 decade. In sharp contrast, he expects inflation to remain persistently higher at around 3%.

A further reason he expects bond prices to fall is that he sees an imbalance in the supply versus the demand for Treasuries. In his view, Treasury supply must rise to meet the demand from large deficits and a ballooning national debt that rose by $1 trillion alone in the last month to $33 trillion.

Ackman contends that Fed policy has shift from zero-rate-interest-policy, or quantitative easing, to quantitative tightening while, at the same time, higher rates to refinance are expected to endure for a long time to come.

Pair the two factors together, quantitative tightening and higher supply and he has deduced that higher market yields sit on the horizon.

The China Factor

Another key factor that has triggered Ackman to bet against 30-year Treasuries is that a primary holder of US bonds, China, has been liquidating. The Chinese government is reported to have liquidated $80 billion during the first half of 2023.

Some analysts believe that escalating tensions between the US and China over Taiwan are a primary reason triggering the Chinese government to reduce their holdings of US debt. Chinese policy clearly states a goal to bring Taiwan under the fold, so to speak, similar to Hong Kong in recent decades.
That aim has triggered an escalation in tensions that includes the US CHIPS Act aimed at boosting semiconductor manufacturing in the US to counter reliance on China.
Ackman sees China decoupling financially from the United States, and, as one of the largest holders of US debt, the natural pressure on bond prices is lower.
So too does he see the Fitch downgrade of the US long-term credit rating as a result of poor fiscal responsibility and political division.
Ackman then makes a fairly simple calculation that if inflation does persist at north of 3% and has a 2% term premium, in addition to a further 0.5% to factor in the real rate, a 5.5% yield could be on the cards.
It’s noteworthy that short-term rates have been higher than long-term rates, which traditionally is a sign of an inverted yield curve but when re-pricing of longer duration bonds occurs, it can happen in the virtual blink of an eye.
For that reason, Ackman sees his short bet not only as an asymmetric one with a disproportionate payoff opportunity but also as a short-term hedge. He expects higher long-term rates attracting capital will hurt equity markets and, if he is right, his bond hedge will limit his equity exposure.
He’s made it clear that he believes it is important now to hedge his portfolio of stocks, and that the optimal hedge to select is the one you would employ even if you didn’t need a hedge. That’s where he sees this bond short fitting in.


Bill Ackman famously turned a $27 million bet against the credit markets in 2020 into a $2.6 billion fortune. Now he’s back shorting bonds again, but this time is reasoning is different.

Ackman has decided to short bonds primarily as a short-term hedge against his stock portfolio and secondarily as a long-term expectation that bond prices will fall causing yields to rise.

His expectations for higher bond market yields are rooted in a combination of monetary and fiscal policy trends. The Federal Reserve is set to continue with a quantitative tightening policy that should keep rates elevated while fiscally the government is expected to be more lenient with stimulus programs.

Add to these factors the decision of the Chinese government, a primary holder of US credit, to reduce its exposure and the pressure on bond prices is forecast to be lower for some time. In turn, that should lead to elevated bond yields for the foreseeable future. Ackman expects inflation to persist at around 3% and 30-year Treasury yields to hit 5.5% as a result.

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