Bill Ackman makes $200mn from bet against US Treasuries

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Billionaire hedge fund manager Bill Ackman made a profit of about $200mn from his high-profile bet against US 30-year Treasury bonds, according to people familiar with the trade.

The founder of Pershing Square Capital Management said on social media on Monday that he had exited the short position he first announced in August. His post helped fuel a recovery in Treasury prices, after an earlier sell-off had pushed yields to 16-year highs.

“There is too much risk in the world to remain short bonds at current long-term rates,” he said on X, formerly Twitter. “The economy is slowing faster than recent data suggests.”

Ackman made the bet against 30-year bonds using options, derivatives that allow traders to profit from a fall in prices without having to borrow and sell the underlying bonds, the people familiar with the trade said. While he made about $300mn from moves in the market, he also paid out nearly $100mn in premiums that allowed him to maintain his position.

The $200mn profit helped Pershing Square’s $13bn flagship fund gain 11.6 per cent in the year to October 17, according to figures published by the firm.

The gains from Ackman’s recent trade are dwarfed by the $2.3bn he netted from another bond market short last year. He entered that bet, which was mostly focused on two-year Treasuries, in December 2021. The trade was described in investor documentation as a hedge for his stock portfolio which fell sharply in value during last year’s bear market. The profits from that bond trade did not fully offset losses in equities, leading to the fund falling 8.8 per cent last year.

He also made $2.6bn during the early stages of the Covid-19 pandemic from bets that companies would struggle to pay their debts.

When Ackman announced his latest bet against US government debt, 30-year Treasuries were yielding about 4.3 per cent. After briefly touching a high of 5.18 per cent on Monday, yields have dropped back to about 5.09 per cent.

In August, Ackman had argued that longer-dated Treasury bonds were “overbought”. Stubbornly high inflation, he said, made it more likely that the US Federal Reserve would increase interest rates, hitting bond prices and driving yields higher.

He also said that “an increasing supply of [Treasuries] is assured” owing to a large US government deficit, which he expected to drive down prices.

Since then, long-dated Treasury yields have moved sharply higher as investors worry that the Fed will keep rates higher for longer. The outbreak of the conflict between Israel and Hamas earlier this month briefly drove yields back down, before the sell-off resumed. Some analysts have said that the prospect of an escalating war in the Middle East could boost the allure of Treasuries, which are a haven for investors.