Morning Brief – Two Bills

Charles Porter
Tue 24 Oct 2023

Two Bills

Yesterday’s market was dominated by comments coming from some highly influential financial voices. Not authorities this time, but investors and in particular two individuals: hedge fund managers Bill Ackman and Bill Gross. These two individuals had been very vocal about their short US treasury view and the need for benchmark traded US rates to claw higher. Their forecasts that the 10-year yields could trade up to 5% had been widely quoted, reproduced and shared. As yields have continued to drive higher in recent weeks, these forecasts have started to materialise and analysts racing to bring their forecasts into line with current pricing have dragged their expectations for rates ever higher. 

That trend continued until yesterday. Yesterday’s market was characterised by comments from these two closely watched investors suggesting they had or will soon exit their short US Treasury positions. In the case of Bill Ackman, this involved disclosing that his short-Treasury bet had been unwound. Bill Gross took one step further to confirm his purchase of short-term rates whilst he expects some debt buying into year-end. Citing a rising global risk backdrop, the investors suggested that demand for US Treasuries could not continue to be so weak to allow rates yields to continue to drive higher. 

Their comments came at a poignant time. Yesterday, surpassing 16-year highs, the 10-year yield passed 5%. This had been a key level that markets had been looking at and was thought to be a threshold that could hold significant implications for US Dollar demand. An immediate decline in benchmark yields caused stocks to suffer to the benefit of the US Dollar. So far, treasury yields have stabilised and many other voices in the market have reaffirmed their bearish view on fixed income despite the withdrawal of these influential money managers. Whether this will mark top of US yields remains to be seen. The US Dollar is certainly feeling the potential for at least a pause in the US fixed income sell off, with EURUSD gaining 1.5% since the close last week.

Discussion and Analysis by Charles Porter

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