The source of all these market changes comes from a tweet published by bill ackman, a well-known American hedge fund tycoon and founder of Pershing Plaza. Ackerman announced on Twitter on Monday that he had closed his short position in long-term US debt.
Ackerman pointed out, "Under the current long-term interest rate, there are too many risks in continuing to short bonds. Therefore, we closed the short position of long-term US debt. " He went on to add that the economic growth rate in the United States was lower than the recent data showed.
At the same time that Ackerman made the above remarks, the yield of US bonds fell sharply during trading hours. The yield of 30-year treasury bonds fell by about 2 1 basis point after reaching the peak of about 5. 18%, while the yield of 10-year treasury bonds fell by about 19 basis point after hitting the 5% mark again in intraday trading.
As shown in the following figure, Monday was the biggest intraday decline in the yield of 10-year US bonds since the Silicon Valley banking crisis in March:
Ackerman disclosed in early August that he shorted 30-year US Treasury bonds through options. At that time, he said that structural changes such as de-globalization and energy transformation would aggravate persistent inflationary pressures. In addition, a large number of bonds issued by the United States to make up for the expanding budget deficit may also push up the yield.
Market bears, including Ackerman, were clearly proved to be correct in shorting US Treasury bonds. Since the end of July, the yield of 30-year bonds has increased by nearly 100 basis points. After a record drop of 17% in 2022, the Bloomberg Global Composite Bond Index has fallen by 4.8% so far this year. The index is heading for an unprecedented third consecutive year of decline.
Now, with Ackerman making it clear that he has closed his position overnight, whether his withdrawal marks that the current upsurge of selling bonds has passed obviously needs investors' careful observation.
Although some market observers said that it is not impossible for the yield of 10 US bonds to further rise to 6%, it is obvious that a high yield of 5% may attract more bond buyers. Federal Reserve Chairman Powell also said last week that the "small" increase in long-term bond yields eased the pressure to tighten monetary policy. In this regard, the open interest contract of the US federal funds rate futures fell sharply, as traders lifted their bets on the Fed's interest rate increase at the June policy meeting 5438+065438+ 10. People are increasingly worried that the war between Israel and Hamas may spread to the whole region, which also urges investors to seek safety.
The bulls in the bond market are ready to move.
In fact, last week, when the yield of 10-year US bonds initially approached and touched the 5% mark, we reminded investors that after reaching the "milestone" of 5% yield, the bond market was not particularly pessimistic at the moment. On the contrary, some well-known industry organizations and bosses believe that the high yield of 5% may provide people with a good opportunity to allocate US debt.
Overnight, "Old Debtor" Gross also supported Ackerman's turning point. Gross believes that the slogan of "higher and longer" interest rates has become a thing of the past. Gross echoed Ackerman's warning, saying that the turmoil in regional banks and the rising default rate of auto loans indicated that the economy had experienced a "significant slowdown".
Gross said that he is buying guaranteed overnight financing rate futures due in March 2025, and this bet will be rewarded if the short-term interest rate falls. He also said that all parts of the yield curve, such as the spread between the two-year yield and the 10-year yield, will end upside down and turn positive before the end of the year.
This statement shows that in less than a month, Gross's view of the market has changed significantly. Just at the end of September, Gross also said that bonds and stocks were unattractive because inflation left little room for the Fed to cut interest rates.
In addition to these two bond market leaders, Vanguard, the world's second largest asset management company, recently expressed optimism about longer-term national debt, betting that the Fed's interest rate hike cycle has ended and the economy will slow down next year.
In its latest fixed income outlook report, the agency said that although it is a cruel summer for bond investors, long-term bonds will continue to be attractive because the economy may enter a shallow recession next year.
Theoretically, the economic slowdown will force the Federal Reserve to cut interest rates, thus pushing down the price of short-term government bonds, because short-term government bonds are more sensitive to interest rates and will also enhance the attractiveness of long-term bonds. Pioneer Pilot said that the comparative advantage of short-term treasury bonds may soon disappear, and if investors can lock in higher interest rates for a longer period of time, their income will be better.
Although Pilot Pioneer said that it is expected that the Fed will not cut interest rates until at least mid-2024, and bond yields will not return to the low level in the modern history of the US bond market. However, Pilot Pioneer also believes that the Fed's interest rate hike cycle is coming to an end, which makes long-term bonds attractive because they have high yield and capital appreciation potential when the economy slows down.
Pioneer Pilot pointed out, "We believe that we are in a new era of fixed income. In this era, the value of bonds has increased significantly-from the perspective of total return and overall portfolio, bonds are better ballast stones. "
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After 16, the yield of US bonds broke through 5% on Wall Street again. Frankly speaking, the cold wind in the era of high interest rates will blow to everyone and hit a new high of 16! How big is the impact of the surge in US debt on global stock markets and real estate? Is the "American debt storm" getting worse? Take history as a mirror: this is something that may happen in the future.