"Big Short" Michael Burry is eyeing long-term U.S. bond this time

Michael Burry, who once made a huge profit by shorting the US property market bubble, became famous as a character prototype in the movie "The Big Short". This time, he is bearish on long-term U.S. Treasuries. His Scion Asset Management held $280 million in put options on the iShares 20-year-plus U.S. Treasury bond ETF at the end of June, up from $172 million three months earlier, according to regulatory filings released this week. If the exchange-traded fund falls as U.S. Treasury yields rise, the options contract he holds will make a profit. But yields haven't seen a recent surge as investors flocked to U.S. Treasuries for safety amid concerns about the spread of the delta variance.

Burry warned in a series of tweets in February that reopening and stimulus would fuel inflation, and that U.S. policy today bears some resemblance to Germany's during hyperinflation in the 1920s, a situation that could prompt the Fed to increase interest. But ahead of the Fed's annual Jackson Hole symposium, many still think the Fed will be able to start cutting back later this year, so the bears are right to bet. Traders will be watching for comments from Powell on how the coronavirus outbreak will affect economic growth and whether the Fed will falter when it changes course.

Burry's bearish view on U.S. Treasuries was broadly in line with most Wall Street strategists' expectations. Morgan Stanley strategist Matthew Hornbach told clients this month that he still recommends shorting the 10-year Treasury note despite the current low yields. Morgan Stanley expects the Fed to announce a cut in December, with yields rising to 1.8% by year-end from 1.26% currently.