Long term Treasury yields will go higher on more supply, less demand and stubborn inflation, says hedge fund manager Bill Ackman
Early futures action indicates Friday may see the S&P 500 SPX recover a small portion of the 2.8% lost over just the last three sessions.
But they should not, warns hedge fund titan Bill Ackman: “I believe that long-term rates, e.g, 30-year rates, will rise further from here. As such, we remain short bonds through the ownership of swaptions.” Rising energy prices also will continue to build inflationary pressures. The U.S. will have to refill its strategic petroleum reserve while OPEC and Russia curb production, and “the green energy transition is and will remain incalculably expensive,” he says.
Which brings us to demand. Ackman notes that China and other foreign nations, historically major buyers of U.S debt, are now selling, perhaps scared off by Washington’s budget machinations. So, where should yields be? “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 Treasurys. And [I] query whether 0.5% is a sufficient real long term rate in an increasingly risky world,” says Ackman.
The buzz U.S. economic data on Friday, include S&P flash manufacturing and services PMIs for September, due at 9:45 a.m. Eastern.
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