Relief in the bond market following the intervention of the US Treasury has been short-lived, and cryptocurrencies and gold have become the main safe havens for money. The maneuver announced last Wednesday by Scott Bessent, US Treasury Secretary, in response to the rise in bond yields calmed doubts for a few hours, but barely two days later, investors turned their backs on it, making it clear that they are not convinced of its effectiveness and that what seemed like a solution could end up being a mere patch in a much more turbulent, complicated, and uncertain economic landscape.
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Yesterday, negative sentiment took hold of the markets again. On Wednesday, Bessent announced that the Treasury would double the maximum size of its repurchase operations aimed at supporting liquidity in the 10 to 20-year and 20 to 30-year debt segments, increasing from $2 billion to a minimum of $4 billion per operation. The measure will take effect on September 9 and will remain in place until November 4, but in the first hours after its announcement, it allowed yields demanded by investors to fall. It was a mirage. On Friday, the yields demanded on US public debt were again moving at levels prior to the government’s proposal. It is not so much that geopolitical tension with Iran continues to rise and makes any forecast on the resolution of the conflict difficult, but rather the idea is spreading that the repurchases announced by the Treasury Secretary do not address the root of the doubts concerning the global economy; these relate to high levels of debt, their high financing cost, and the risk that all this will be transferred to the entire economy.
In the opinion of Eiko Sievert, Executive Director of the Public and Sovereign Sector at Scope Ratings, the repurchases do not address the underlying fiscal challenges facing the US. “Many investors’ concerns are not only about market liquidity but increasingly reflect high budget deficits, rising public debt, and the growing interest burden. The announced repurchases do not contribute at all to changing any of these fundamental aspects. If long-term bonds were increasingly replaced by shorter-term debt instruments, financing costs could temporarily decrease in the short term but increase refinancing risk in the future; therefore, while they are useful for market functioning, they do not substitute for fiscal consolidation,” he explains.
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The fiscal authority acted in response to a certain level of debt yield, “and that is the real signal,” points out Gabriel Selby, Director of Research at CF Benchmarks. “The market interpreted the news more as a currency-related story than a bond one. When an issuer intervenes once to limit its own financing cost, investors assume it could do so again. As a result, demand shifts towards assets whose supply cannot be expanded on demand,” he adds. And this is where Bitcoin and gold have found the perfect breeding ground to regain some of their ground.
The reference cryptocurrency—also affected by mechanical issues in its pricing—soared nearly 7% yesterday and has gained 23% over the week, placing its value around $76,500, its highest level since May. Meanwhile, gold rose 1.5% to reach about $4,585 per ounce and records an increase of over 13% in August, heading towards its largest monthly gain since 1999, as highlighted by the Financial Times. Meanwhile, stock markets posted timid gains amid a bearish climate that contrasts with the highs of early August. The Nasdaq, for instance, opened the Wall Street session with advances around 0.7%.
