(Bloomberg) -- Some of the market’s most prominent bond bears are saying the historic rout in US Treasuries has gone too far. 

Billionaire investor Bill Ackman wrote in a social media post Monday that he unwound his bet against US government bonds amid rising global risks, while Bill Gross, co-founder of Pacific Investment Management Co., wrote that he’s buying short-dated interest-rate futures in anticipation of a recession by year-end.

Their comments coincided with a swift turnaround in yields during the trading session. The rate on the 30-year bond fell about 21 basis points after peaking at around 5.18%, while the yield on the 10-year tumbled roughly 19 basis points after earlier surpassing 5% for the first time in 16 years.

 

Whether the retreat of the two vocal bears will mark the peak of the current bond selloff remains to be seen. Certainly some market watchers say 10-year yields pushing up toward 6% isn’t out of the question.

Yet signs of a broader pivot in market sentiment can also be seen. Fed Chair Jerome Powell last week signaled that elevated long-term bond yields “at the margin” lessen the pressure for tighter monetary policy. In response, open interest in Fed fund futures plunged as traders unwound bets on a rate hike at the central bank’s November policy meeting. Growing concerns that the war between Israel and Hamas could spread throughout the region is also prompting a bid for safety among investors. 

“There is too much risk in the world to remain short bonds at current long-term rates,” Ackman, founder of Pershing Square Capital Management, wrote in a post on X, the platform formerly known as Twitter. “The economy is slowing faster than recent data suggests.”

Gross, for his part, wrote that “‘higher for longer’ is yesterday’s mantra.”

Bets against Treasuries such as Ackman’s have proven winning wagers in recent years. The Bloomberg Global Agg Treasuries index has slumped 4.8% year-to-date, following a record 17% decline in 2022. The gauge is headed for an unprecedented third year of losses. 

“Markets are likely to stay choppy,” because “exactly how the inter-relationships between growth, interest rates, and the Fed are working right now is uncertain,” wrote Jason Draho, head of asset allocation Americas at UBS Global Wealth Management, in a note to clients. 

Ackman disclosed  in early August that he was bearish 30-year Treasuries via options both as a hedge for his equity investments and as a stand-alone wager. He said at the time that structural changes, such as deglobalization and the energy transition would fuel persistent inflation pressures. He added that a flood of bond supply to fund swelling US budget deficits could also push yields higher. 

Thirty-year yields have increased almost 100 basis points since the end of July.

Ackman’s skepticism Monday on the health of the US economy stands in contrast to surprisingly strong economic data in recent months.

A model developed by the Atlanta Fed suggests the economy is growing at about 5.4%. 

Gross echoed Ackman’s warning. He pointed out that regional bank turbulence and the rise in auto-loan delinquencies suggest “a significant slowdown.”

The one-time “bond king,” who retired from asset management in 2019, said he’s buying Secured Overnight Financing Rate futures maturing in March 2025, a bet that will pay off if short-term rates fall. He also said various parts of the yield curve, such as the gap between two- and 10-year rates, will go positive before year end. 

As recently as late September Gross said neither bonds nor equities were attractive because inflation leaves little room for the Fed to lower rates. 

--With assistance from Edward Bolingbroke, Liz Capo McCormick, Edward Dufner and Edward Harrison.

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