While the stock markets have been crashing over the past few days, long-term treasury yields have been rising sharply, indicating that somebody out there is selling a lot of bonds. This is an abnormal reaction to market crisis, considering what normally happens.
During market turmoil, investors typically pivot from risk-on assets (like stocks) to risk-off assets (like bonds). However, ever since Trump announced sweeping tariffs last week, everything is being sold off, including "safe" assets like long-term US debt.
Yields Surge
Since Trump announced the tariffs on April 2nd, the 10-year yield surged from 4.0% to 4.5%.
Meanwhile, the 30-year yield increased from 4.4% to 5%.
The last time the 30-year yield rose this much in three days was on January 7th, 1982.
Remember that when bonds are sold, their yield goes up, and when they are bought, their yields go down.
This rapid sell-off of bonds could indicate some serious liquidity issues in the US banking system. This may require intervention from the Federal Reserve (yet again) in the form of more QE and lower interest rates.
Such action would be good for stocks and crypto, but terrible for inflation, and the people who live paycheck to paycheck.
Who's Selling?
While it's impossible to know for sure (given that TradFi is a total black box), many have been speculating that China is the culprit here, and that they have been selling treasuries in retaliation to the tariffs imposed by Trump.
Or could it be that the entire world is simply losing faith in America's long-term outlook, thanks to decades of artificially low interest rates and money printing? Or perhaps nations and institutions are preparing for the fallout of another worldwide liquidity crisis.
In any case, someone will have to pick up the slack and purchase the treasuries that are being sold off, or risk an economic meltdown. If nobody wants them, the "buyer of last resort" (the Fed) will have to fire up their printing press again, which will lead to even worse inflation than what we saw in 2022.
Opaque Bond Market
How can we be certain that China is the one selling off treasuries? We cannot.
The data on foreign treasury holdings is only reported monthly/quarterly by the U.S. Treasury Department - we can't see the changes in real-time.
We are relying on China to report to the US government, and for the US government to report to the people how many treasuries were sold overseas.
Good thing trust in these institutions is at all-time highs these days! /s
If only we had a more transparent financial system that didn't rely on imperfect humans.
Transparent Cryptocurrencies
Compare the opaque "trustworthy" TradFi system with something like Bitcoin or Ethereum, which are both completely transparent.
Anyone running their own node can verify how much Bitcoin exists, which addresses own what, and monitor the transactions in real-time.
Likewise, on Ethereum we can verify for ourselves how the various ERC20 tokens are distributed, how much TVL (total value locked) there is in the system, and the total number of transactions.
Until next time...
As confidence and trust continue to wane in the debt-based traditional financial system, an increasing number of people will be making their way over to the asset-based trustless crypto world.
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.
Further Reading
- Are Decentralized Blockchains The Solution To Flawed Economic Data?
- Could This Stock Market Crash Usher In CBDCs?