Bond markets are gearing up for a busy week as the U.S. Treasury begins another series of auctions this week.
The Treasury will sell $51 billion in new 2-year notes starting on Tuesday, the first of three benchmark auctions that will look to sell $114 billion in Treasury notes.
The timing of the auction is curious as the yield for the 10-year note tops the 5% threshold for the first time since 2007 and as markets have their worst sell-off in nearly two years.
Related: Bond markets back in focus, with 2-year auction on deck, as selloff continues
One investor who has been short the bond market, or is betting heavily that bond prices will fall, is billionaire activist investor Bill Ackman. But he is changing his tune now, ahead of this week's auction.
Ackman, CEO of hedge fund management company Pershing Square, took to Twitter to announce that his firm has "covered our bond short" while also stating that "there is too much risk in the world to remain short bonds at current long-term rates."
The economy is slowing faster than recent data suggests.
— Bill Ackman (@BillAckman) October 23, 2023
Treasury yields have spiked in recent weeks as a combination of faster inflation, a hawkish Federal Reserve, a resilient job market and the prospect of deeper government borrowing to fund record fiscal deficits have coalesced into a perfect storm for Treasury bonds that are seen as less volatile than equities like stocks.
The 2-year Treasury note was last seen trading at 5.114% and some investors think there may be more room to run, as well, given that long-dated yields are still trading at a discount to both the current effective Fed Funds rate of 5.33% and the projected rate of 5.6% based on bets of at least one more rate hike over the coming months.
All that demand is helping force out short-sellers like Bill Ackman who have a high chance of taking a bath if they stay in their current positions.
Demand could be tested further into the end of the year, however, after Treasury Secretary Janet Yellen publishes her quarterly refunding report on November 1 – also the day of the next Fed rate decision – which will outline the size of benchmark auctions, as well as the overall debt-raising mandate, heading into 2024.
