Bill Ackman, legendary investor and founder of hedge fund Pershing Square, disclosed on social media that he would close his position in long-term treasury bond bonds due to the increased risk of short selling. Affected by this, US bonds fell in response. The benchmark 10-year US Treasury yield fell 7.2 basis points to 4.85%, reaching a near week low. It briefly broke through 5% during the session, reaching its highest level in 16 years.
Several Wall Street institutions have recently released reports stating that the selling trend has not ended.
Announce the departure of Zhiying
As one of Wall Street's most famous bond bears, Ackerman announced on social media that he had liquidated his short positions in long-term US bonds.
Subsequently, Ackerman explained his decision: there are too many risks in continuing to short bonds under the current long-term interest rates. The speed of economic slowdown is faster than recent data shows.
After Fitch downgraded the US credit rating, Ackerman revealed at the beginning of August that his company was shorting 30-year treasury bond bonds, because it was expected that the US budget deficit would surge, and many factors would make the inflation rate far higher than the Federal Reserve's target of 2%. This hedge fund legend said he wouldn't be surprised if the 30-year yield climbed to 5.5% in the near future.
Since the end of August, the yield of 30-year US treasury bond bonds has risen by more than 80 basis points, which has also benefited Ackerman a lot. It is worth noting that after Ackerman made the above remarks, medium - and long-term US bonds plunged sharply, and the yield of 30-year treasury bond bonds fell 6 basis points to 5.01% on Monday. The benchmark 10-year US Treasury bond fell more than 15 basis points from its intraday high to 4.85%.
As the situation in the Middle East heats up, JPMorgan Chase CEO Jamie Dimon recently issued a warning about the multiple threats facing the world, stating that this may be the "most dangerous moment in decades".
Coincidentally, the old "bond king" Bill Gross announced on Monday that he is buying futures linked to the Guaranteed Overnight Funding Rate (SOFR) and expects the US economy to experience a recession in the fourth quarter. He predicted that the yield difference between the two-year and 10-year treasury bond bonds and the two-year and five-year treasury bond bonds would become positive by the end of the year. The turmoil in regional banks and the rise in car loan defaults indicate that the US economy will significantly slow down.
Wall Street remains cautious
Since the beginning of this month, US bond yields have been rising, driven by a series of factors, including investors demanding higher term premiums to compensate for the uncertainty of US fiscal and monetary policies. Many institutions believe that the future wave of US bond selling may continue.
Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, recently pointed out in a report that investors may need to include the outbreak of global conflicts and the sustainability of U.S. debt in the premium, which covers all risks of holding long-term government debt until its maturity.
Shalet stated that since the outbreak of the Israeli-Palestinian conflict, expectations for future price increases in the United States have sharply increased, and the increasing federal government debt and service costs may ultimately suppress economic growth or trigger higher inflation. "The federal debt has exceeded 33 trillion US dollars, and interest costs are now close to 600 billion US dollars, which will exceed the total defense spending by 2033
As for the future trend of US bonds, Shalet believes that several points need to be paid attention to. First, the issuance of US treasury bond bonds has soared, facing a shortage of buyers, that is, there is no Federal Reserve, no regional banks, and fewer overseas investors, which raises reasonable doubts about the sustainability of US debt. Another is the market's view of actual neutral interest rates, which is that when the economy is sufficiently strong and inflation is stable, the short-term interest rate level expected to dominate may be higher than previously assumed
As the Federal Reserve continues its efforts to control inflation, the market is evaluating the possibility of interest rates remaining high for a longer period of time. The latest interest rate futures show that the space for interest rate cuts next year has decreased by nearly 10 basis points in the past month.
Kevin Zhao, global head of sovereignty and currency at UBS Asset Management, said that under the prospect of rising long-term interest rates and growing fiscal deficits, the Bond Vigilante is returning behind the selling trend.
The historic sell-off of Phnom Penh bonds triggered by the "mini budget" (including a series of tax cuts) of former British Prime Minister Liz Truss last September is an example of investors attacking their irresponsible fiscal policies. "The government must be very cautious about the future. You saw this last September, as well as in the US treasury bond bonds. A few months ago, most people expected that the US government deficit would continue to decline as the economic growth slowed down -3.9% last year, but actually rose as the economic growth slowed down - which is very worrying for bond investors." He said.