Bill Ackman says he's betting against 30-year Treasurys as a hedge against stubbornly high inflation

• Billionaire investor Bill Ackman revealed he's betting against 30-year US Treasurys.
• The Pershing Square chief said he's short due to to the impact of higher interest rates on stocks.

Bill Ackman revealed he's betting against US Treasurys as a hedge against stubbornly high inflation.

The Pershing Square CEO revealed his hedge fund's new bets in a post on X on Wednesday, saying he's "short in size" on 30-year Treasurys as a buffer against the impact of higher interest rates on stocks, and as a "high probability standalone bet."

The Federal Reserve has already raised interest rates at an aggressive pace over the past year in a bid to cool soaring inflation. While that's helped tame consumer price pressures, investors are worried any more hikes could damage the US economy.

Bond prices tend to have an inverse relationship to interest rates. When interest rates go up, bonds usually fall. Traders may bet against bonds if they think their prices will drop.

"There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them," Ackman said.

"We implement these hedges by purchasing options rather than shorting bonds outright. This makes it easier to sleep at night as it makes your downside finite. Our 'sleep-at-night test' is a critical risk management tool."

Ackman said high defense costs, energy transition, and the greater bargaining power of workers are likely to stoke higher levels of inflation, adding that he sees a world with inflation remaining at 3%. Against that backdrop, yields on 30-year Treasurys could hit 5.5%. "It could happen soon," he said.

"The best hedges are the ones you would invest in anyway even if you didn't need the hedge. This fits that bill, and also I think we need the hedge," he added.

Ackman has reaped hefty gains from past hedging. Last year Pershing Square raked in about $5 billion of profits by hedging the pandemic crash and interest rate hikes.

His fresh bets against bonds comes just a day after Fitch surprised markets by slashing the US government's credit score from the top-tier AAA to AA+.