Just a couple of days ago, the US 10-year yield surged to 4.5% and the 30-year topped 5%. When Trump announced that most of the tariffs were going to be paused, there was short-term relief and the yields fell.

However, according to data from cnbc, the yield on the 10-year retraced back to 4.4% on Thursday, and the 30-year is closing in on 4.9% again, indicating that there is still quite a bit of fear in the market.

Remember that yields increase when bonds are sold, and that risk-on assets like stocks are typically sold for "safer" assets like US government debt in times of uncertainty.

If that's the case, then why are stocks and bonds being sold off at the same time?

Loss Of Confidence

There's a good chance that bond investors are starting to lose confidence in the traditional "safe haven" asset of US debt.

Considering that US fiscal spending has gone exponential, inflation is still above target, and that current interest rates are unsustainable, investors may be concluding that these tariffs are "the straw the breaks the camel's back".

The sell-off in bonds could also be a sign that people are preparing for an impending liquidity crisis in the banking system and shoring up cash to meet possible margin calls.

In addition, there has been speculation that China and/or Japan are selling off their treasuries in retaliation to Trump's tariffs, or to defend their own currencies from devaluation.

We won't know for sure which countries are selling bonds until the Treasury Department updates their "Major Foreign Holders of Treasury Securities" table at the end of the month.

Even then, the reported numbers are based on trust, instead of cryptography and math.

The Big Picture

For decades there had been increasingly easy monetary conditions, until Convid flipped everything upside down. Ever since 2020, long-term rates have been rising steadily as bond investors demand more return for heightened inflation, and an increasingly risky asset.

The only way to reverse the trend would be with more central bank intervention and another round of quantitative easing (buying bonds with money printed out of thin air), which could very well end up being the final nail in the dollar's coffin.

Let's say that bonds continue to plummet in value. What might replace US debt as the new "safe haven" asset?

A Gold Standard?

Fed critics have been promoting gold as a hedge against inflation ever since the Great Financial Crisis (GFC) of 2008.

The price of gold fluctuated between $1000 to $2000 per ounce until 2022, when it really took off. Since then, it has rapidly surged from $2000 to $3000, demonstrating that it still has value in times of uncertainty.

Could gold end up being the base of our new financial system?

While possible, the problem with gold has always been counter-party risk, meaning that we need to trust the custodian not to run off with the shiny rocks in a "shit hits the fan" scenario.

Advantages of Cryptocurrencies

Unlike precious metals, holding a cryptocurrency like Bitcoin doesn't involve any counter-party risk. If you hold the private keys, the asset cannot be stolen or confiscated from you.

In the decentralized finance (DeFi) world, we can verify transactions ourselves by checking a block explorer or by running our own node, rather than relying on data from some government agency.

Cryptocurrencies take the need for trust out of the equation because they are based on math, cryptography, and open-source code that anyone can verify for themselves.

Ultimately, this new form of money could completely replace US debt over time.

Until next time...

If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the Hive blockchain. You can also follow me on InLeo for more frequent updates.

Resources

Bond Yields [1]
Gold Prices [2]

Further Reading

- Heads Up: Stock Prices and Bond Yields Are Diverging
- Will Bitcoin Be The Base Layer Of The New Financial System?
- Who Does The World Owe $315 Trillion Dollars To?
- The Best Form of Money: Precious Metals vs. Cryptocurrencies

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