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Exploring the flip in concerns from inflation to recession by one of the biggest voices in the investment world. The relationship between bond prices and inflation, the role of government bonds as indicators, and Bill Ackman's change in priorities and concerns about a looming recession.
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Quick takeaways
- Bill Ackman initially bet on rising bond yields due to underestimated inflation, but later closed his position, possibly due to historical trends and the resistance at the 5% yield level.
- Ackman's focus has shifted from worrying about inflation to being concerned about an impending recession, as he believes the economy is slowing faster than recent data suggests.
Deep dives
Inflationary expectations and bond prices
When a country issues bonds to borrow money, they try to set the interest rate close to the expected inflation rate. Government bonds serve as indicators of inflation expectations. If investors believe that inflation will be higher than anticipated, they demand higher returns from bonds, leading to selling pressure and driving bond prices down. This inverse relationship between bond prices and yield allows investors to earn additional yields if they buy bonds at lower prices and hold them until maturity.
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Listen to the best highlights from the podcasts you love and dive into the full episode