Bill Miller is betting big on rising bond yields just as the Fed set to tighten policy

Published Thu, Feb 17 20229:01 AM EST

Longtime value investor Bill Miller is betting big on a rise in long-term bond yields, just as the Federal Reserve is set to embark on its tightening cycle that could include multiple rate hikes this year. Miller held more than 25,000 put options contracts on the iShares 20 Plus Year Treasury Bond ETF (TLT), with a notional value of about $378 million at the end of 2021, a new regulatory filing showed. That means he was long puts against more than 2.5 million shares of the ETF, which many use as a proxy for long-term Treasury bonds. Investors profit from puts when the underlying securities fall in prices. Since bond prices fall as yields rise, Miller's position signaled he expected an advance in bond yields. The bet was his biggest holding as of the end of December. The filing doesn't reveal the value, strike price, or expiry of the options, so it's unclear how much Miller paid for them. Moreover, it's also likely that Miller could have sold it in the first quarter of 2022. If he kept the bet, it would have been profitable — with the ETF down 8.4% year to date. Bond yields have already experienced a big jump in the new year, with the benchmark 10-year rate topping 2% after starting 2022 at around 1.51%. The surge came as the Fed signaled its readiness to begin raising interest rates to tame soaring U.S. inflation. The Fed has also pointed to a reduction of its multitrillion-dollar balance sheet to fight inflationary pressures. Miller, the founder of Miller Value Partners, made his name on Wall Street as a market-beating value investor. He once managed the Legg Mason Capital Management Value Trust, which beat the S & P 500 for 15 straight years from 1991 to 2005. Miller co-manages the Miller Opportunity Trust (LMNOX) , which has about $2.1 billion in assets under management. Other than the bet on interest rates, Miller's top long holdings consisted of some Big Tech names at the end of the fourth quarter, including Amazon , Meta Platforms and Alphabet . During the fourth quarter of 2021, Miller also added a $87 million bet on toy company Mattel. The stock has rallied over 18% this year on the back of stronger-than-expected earnings. The investor also built a new stake in Coinbase in the fourth quarter, worth about $62 million. He also owned shares of newly public bitcoin miner Stronghold Digital . The longtime bitcoin bull recently revealed that bitcoin at one point made up for more than half of his personal wealth , but the position has dipped as of late due to a sell-off. He started buying bitcoin at around $200 to $300 years ago. The digital coin now trades around $42,600 and hit an all-time high last year above $68,000.

Bill Miller

Scott Mlyn | CNBC