Bitcoin and gold surge amid investor doubts over the US Treasury’s move on bonds
The reference cryptocurrency rises 7% and is around a $76,500 valuation, while the ounce of gold achieves... The relief in the bond market after the intervention by the US Treasury has been short-lived, and cryptocurrencies and gold have become the main safe havens for money. The move announced last Wednesday by Scott Bessent, US Treasury secretary, in response to the escalation in bond yields eased concerns for a few hours, but just two days later, investors turned their backs on it, making clear that they are not convinced of its effectiveness and that what seemed like a solution could end up being little more than a patch in a much more turbulent, complicated, and uncertain economic outlook.
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, rising from $2 billion to a minimum of $4 billion per operation. The measure will take effect on September 9 and run until November 4, but in the first hours after its publication it allowed required investor yields to fall. It was an illusion. On Friday, required yields on US government debt moved back to the levels seen before the government proposal. It’s not so much that geopolitical tension with Iran is still increasing and makes any forecast about resolving the conflict harder; rather, the idea is gaining ground that the buybacks announced by the Treasury secretary do not address the root of the doubts that concern the global economy. These concerns have to do with high levels of debt, its high financing cost, and the risk that all of this could feed through into the economy as a whole.
In Eiko Sievert’s view, CEO of the public and sovereign sector at Scope Ratings, buybacks do not address the underlying fiscal challenges facing the US. "Many investors’ concerns are not only about market liquidity; increasingly, they reflect the high budget deficits, the rising level of public debt, and the growing interest burden. The buybacks that have been announced do nothing whatsoever to change any of these fundamental aspects. If long-term bonds were increasingly replaced by shorter-term debt instruments, financing costs could fall temporarily in the short term, but refinancing risk would rise in the future; therefore, while they are useful for the functioning of the market, they do not replace fiscal consolidation,” he explains.
The fiscal authority acted in response to a certain level of debt yield, "and that is the real signal," says Gabriel Selby, Director of Research at CF Benchmarks. "The market interpreted the news more as a story related to the currency than to bonds. When a issuer steps in once to limit its own financing costs, investors assume it could do so again. As a result, demand shifts to assets whose supply cannot be expanded on demand," he adds. And this is where Bitcoin and gold have found the perfect environment to recover some of their ground.
The benchmark cryptocurrency—also affected by some mechanical issues in its trading—surged by nearly 7% yesterday and has gained 23% over the week, putting its value around $76,500, its highest level since May. Gold, for its part, rose 1.5% to about $4,585 per ounce and has increased by more than 13% in August, putting it on track for its biggest monthly gain since 1999, as Financial Times highlights. Stocks, meanwhile, posted modest gains amid a bearish backdrop that contrasts with the early-August highs. The Nasdaq, for instance, opened trading on Wall Street up around 0.7%