Bill Ackman is making sizable bets on declines for 30-year US Treasuries as a hedge on the impact of higher long-term rates on stocks.

Ackman also sees the short as a “high probability” standalone play, the Pershing Square Capital Management founder said in a post on X, the platform formerly known as Twitter.

An increasing supply of Treasuries will be needed to fund the current budget deficit, future spending plans and higher refinancing rates, Ackman said. He is making the investment via options, rather than shorting bonds outright.

Long-term debt looks “overbought” from a supply and demand perspective and it’s hard to see how the market will cope with the increased issuance “without materially higher rates,” he added.

“There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them,” Ackman said. “The best hedges are the ones you would invest in anyway even if you didn’t need the hedge. This fits that bill, and also I think we need the hedge.”

The US curve 10-years and beyond has been weighed by refunding debt sales of $103 billion next week, up from $96 billion in May, in the first boost to the so-called quarterly refunding since 2021. This includes $23 billion of 30-year bonds scheduled for Aug. 10.

Read more: US Ramps Up Debt Issuance, Adding Fuel to Selloff in Treasuries

The 30-year yield could reach 5.5% if long-term inflation holds at 3% instead of 2%, according to Ackman. The yield was up 1 basis point to 4.19% in Asia trading.

“There are many times in history where the bond market reprices the long end of the curve in a matter of weeks, and this seems like one of those times,” he said.

Fitch Ratings’ decision this week to downgrade US debt highlights the booming deficits that are at the heart of the bear case for Treasuries, even as investors remain convinced the bull case is the stronger one.

--With assistance from Garfield Reynolds and Michael G. Wilson.

(Updates with details throughout)