Paul Tudor Jones Raises Inflation, Election Concerns
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If you’re wondering why the bond market has been pushing Treasury yields higher lately, the billionaire hedge fund manager Paul Tudor Jones offers a simple answer: the election.
The rate-sensitive bond proxy, the iShares 20+ Year Treasury Bond ETF (TLT), has fallen 8% since the Fed’s jumbo rate cut Sept. 18 (bond yields have an inverse relationship with prices), as investors fret about inflation’s resilience.
As the election draws closer, the founder and chief investment officer of Tudor Investment said he has no confidence in either candidate’s ability to manage inflation and is therefore worried that government spending could cause a bond market sell-off, spiking interest rates.
“We are going to be broke really quickly unless we get serious about dealing with our spending issues,” Jones told CNBC in an interview Tuesday.
Jones firmed his views by saying he has no plans to own fixed income and will be betting against the longer-dated part of the bond market. Meanwhile, he’s bullish on bitcoin, gold and commodities citing what he sees as the risk that “all roads lead to inflation.”
Jones founded his hedge fund in 1980 and rose to prominence by correctly predicting the stock market crash of 1987.
Harris, Trump ‘Least Suited’ for Inflation Fight
Jones pointed out that budget deficits increased under the administrations of former President Donald Trump and President Joe Biden, and said that Trump and Vice President Kamala Harris are “least suited for the job ahead of them” regarding fiscal responsibility and fighting inflation.
The hedge fund manager elaborated on ways the government can rein in spending but that it would require significant political effort, such as allowing the tax cuts from Trump’s first term to expire or a major reduction of the federal workforce.
The federal deficit for the 2024 fiscal year soared above $1.8 trillion according to the Treasury Department, 8% higher than 2023. Over the course of President Trump’s four years in office, the gross national debt grew from $19.95 trillion to $27.75 trillion—a $7.8 trillion increase.
Deficit spending typically increases government borrowing, which raises the supply of Treasury bonds in the market; this can lead to higher interest rates as bond issuers offer more attractive yields to entice buyers, while potentially pushing down bond prices due to the increased supply.
Additionally, persistent deficit spending can stoke inflation concerns, which may cause investors to demand higher yields, further affecting bond prices and market dynamics.