Bill Ackman’s Treasury Short May Be Right for Wrong Reasons

Long-dated government bonds are going through a rough patch. Just in the past week or so:

  • The Bank of Japan tweaked its yield curve control policy (adding to worries that Japanese money could leave international markets and return home).
  • The US Treasury upsized its quarterly bond sales (raising concern that supply would swamp demand).
  • The ADP Research Institute’s payrolls report surprised to the upside (suggesting to some that the US labor market was running too hot to tame inflation and that the Federal Reserve might take interest rates higher to rein it in).
  • And Fitch Ratings downgraded the US from AAA to AA+ (a move that meant two-thirds of the main rating companies now view the nation as a less-than-sterling credit, although — for a variety of reasons — the conventional wisdom is that this last factor probably moved markets less than the others).

The upshot is that yields on 30-year Treasuries jumped about 29 basis points since Monday and were poised to test their 12-year highs set last October.

A Rough Patch