Paulson, Robertson Bet On Rising Treasury Yields

Dec 23 2009 | 12:44pm ET

Two prominent hedge fund managers are making big bets on U.S. Treasury yields.

John Paulson’s Paulson & Co. has begun shorting U.S. government bonds, believing that inflation will lead to higher yields, which will drive down the price of the securities, the Financial Times reports.

“It will be difficult for the government to withdraw the economic stimulus,” Paulson said in a recent speech. “An increase in the monetary base leads to an increase in the money supply, which leads to inflation.”

According to the FT, another major hedge fund, TPG-Axon Capital Management, is also betting on rising yields.

Tiger Management founder Julian Robertson is taking a different tack to profit from inflation’s effect on Treasuries. He’s begun betting on a widening yield curve.

“If they are right,” one hedge fund manager told the FT of Paulson, TPG-Axon’s Dinakar Singh and Robertson, “they will make a fortune. If they are wrong, they haven’t lost much.”

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