Treasury Debt Woes Spark Debasement Trade as Gold and Bitcoin Soar
The debasement trade is gaining traction on Wall Street as concerns over the US budget deficit and Treasury debt mount. The conventional wisdom behind this trade is that perceived hard assets, such as cryptocurrencies and precious metals, gain value as investors try to hedge against a weaker US dollar and Treasury debt.
Last week's announcement by Secretary Scott Bessent of the Treasury Department to double the maximum size of its bond buyback to at least $4 billion from $2 billion was seen as a significant move. Gold touched three-month highs on Monday, building on last week's advance of more than 5%, and is on track for its biggest monthly rise since 1999.
Bitcoin added 2% on Monday, reaching the highest level since May, while the US dollar index hit three-month lows last week. The Treasury Department's move could aid the bond market but also translate into outsized pain for the dollar, according to Nohshad Shah of Citadel Securities.