Billionaire investor Stan Druckenmiller, founder of the Duquesne Family Office and a former manager for George Soros, has made significant bullish moves on two-year notes due to his mounting concerns about the economy. This revelation came during an interview with hedge fund manager Paul Tudor Jones. Druckenmiller's decision mirrors sentiments from other notable financial figures like Bill Ackman of Pershing Square Capital Management, who voiced concerns about global economic risks. Unlike Ackman, Druckenmiller maintains bearish positions on long-term bonds due to apprehensions about rising government debt issuance. However, his fresh positions in two-year notes mark a significant shift, making him net-long on fixed income for the first time since 2020.
The billionaire investor believes there's a potential hard landing on the horizon for the US economy. He's foreseen drops in corporate profits, between 20% to 30%, and anticipates a decline in commercial real estate values. According to Druckenmiller, current economic indicators are signaling a softening, especially as the effects of the pandemic stimulus begin to wane. Moreover, he pointed out that past simultaneous hikes in interest rates, oil prices, and the dollar have traditionally been detrimental to economic stability.
On the topic of bond yields, Druckenmiller projects that the yield curve will steepen. This viewpoint stems from his expectations that the Federal Reserve will cut interest rates. Recent yields on two-year Treasuries soared to almost 5.3%, the highest in over a decade, following Federal Reserve Chair Jerome Powell's commitment to maintaining elevated rates. Druckenmiller opines that if his economic predictions materialize, two-year yields could drop to around 3%, while 10 and 30-year yields might stabilize at about 5%.
In his conversation, Druckenmiller didn't shy away from critiquing the actions of the Treasury during the pandemic. Specifically, he expressed disappointment in Treasury Secretary Janet Yellen for not capitalizing on the near-zero interest rates to sell more long-term bonds. Labeling it as potentially the "biggest blunder" in the department's history, he contrasted the Treasury's approach to most Americans who refinanced their mortgages during the same period. Druckenmiller remains deeply concerned about the surging government-debt, emphasizing its potential implications on future entitlements and economic policies.
