There are many ways for investors to buy Treasuries, but the increasingly popular option is through the iShares 20 Plus Year Treasury Bond ETF (TLT) which is a blend of 10-year and 30-year Treasuries. Currently, this fixed income ETF offers a yield of 3% and is down 2% YTD.

The ETF has been hammered in recent sessions due to Fitch’s downgrade of US debt, larger than expected budget deficits, and rates that are likely to stay elevated at least into Q1 of next year. Another potential reason for TLT’s poor performance in recent sessions is that Pershing Square Capital Management founder Bill Ackman unveiled a bet against TLT and long-duration Treasuries. 

Ackman shared his reasoning on Twitter. He believes that ‘structural’ changes in the world such as the re-shoring of supply chains, an increase in defense spending, electrification of the energy sector, aging demographics, and a tight labor market are indicators that inflation is going to remain high for a meaningfully long period of time. 

Based on this, he believes that long-term Treasuries will need to offer higher yields to lure investors, while they remain currently priced as if inflation is transitory given the 30-year’s current yield of 4.2% inflation. He believes that it should be yielding between 5.5% and 6% given his expectations of inflation, implying losses between 31% and 43%. 

Finsum: Bill Ackman is one of the most successful investors of his generation. Recently, he unveiled a short position against long Treasuries and TLT, one of the most popular fixed income ETFs.