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The duration trade

Aug 07, 2023

Bill Ackman from Pershing Square announced to short the 30-Year US Treasury in size as he expects yields to hit 5.5% as structural changes will lead to higher levels of long-term inflation. These would include de-globalization, higher defence costs, the energy transition, growing entitlements, and the greater bargaining power of workers. He thinks it would be hard for the market to cope with the increased issuance “without materially higher rates”.

Warren Buffett bought $10 billion in short term U.S. Treasuries last Monday. “We bought $10 billion in Treasuries. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month” T-bills, Buffett told.

Looking at the current yield curve, both trades – long short duration and short long duration – make sense. We own short duration bonds in the portfolios for our clients.

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