Mastermind investor Bill Ackman, renowned for his instinctive market plays, has done it yet again. This time, he capitalized on a bet against 30-year Treasury bonds, pocketing a cool $200 million. And here’s the scoop on how it all played out.
Back in the game at Pershing Square Capital Management, Ackman’s initial strategy was to go short on these bonds using options. This maneuver swelled his account by $300 million. But, as with any investment strategy, it’s not all rainbows and unicorns. To hold onto his position, Ackman had to part with nearly $100 million in premiums.
The key to his success? Impeccable timing.
By the time Ackman went public with his short stance in August, bond yields were already on the rise. Why? There was an air of anticipation surrounding potential hikes in interest rates. Factors like persistent inflation and possible increases in Treasury supply only fanned the flames. What ensued was akin to a market frenzy: a significant outflow of buyers sent Treasury bonds into a whirl.
Ackman’s savvy maneuver didn’t just boost his personal coffers. It also poured some heavy rain into Pershing Square’s pool, driving their $13 billion flagship’s gains up by 11.6% as of mid-October.
But even seasoned investors know when to pivot. On a recent Monday, Ackman took to social media to announce that he was wrapping up his short positions on Treasurys. His rationale? The global risks simply don’t justify staying short on bonds with the present long-term rates, especially when the economic slowdown appears to be more rapid than recent figures indicate.
The aftermath of his announcement was palpable. Treasury yields took a backseat after the rate on 30-year bonds skyrocketed past the 5% mark, marking a peak not seen since 2007.
For those of you keeping a mental ledger, this isn’t Ackman’s first rodeo with bond market shorts. In fact, last year, he took home an impressive $2.3 billion from a bet against two-year notes initiated in December 2021.
In the world of high-stakes investing, the ability to read the market’s tea leaves and act decisively is crucial. And as Ackman’s recent play demonstrates, with the right strategy and a bit of foresight, the rewards can be astronomical.