A few thoughts on the bond market sell off, what’s driving it and what it means for Equities and Crypto 👇 There’s are a combination of factors driving the bond sell off Firstly, this is the age of fiscal dominance The US (and other major governments) are “running it hot” running HUGE deficits north of 6% Alongside that, we have this AI race which is dumping duration on the market and competing for “duration capital” All the while the deficit is exploding and we have a huge deficit rollover to finance in tandem with the new debt Add to that, the war in Iran is impacting oil exporter revenues so they need to sell treasuries for cash (as well as sell gold, which is why I think gold underperforming) As yields go higher, you also have the mortgage companies “convexity hedging” That is, mortgage companies hedge their loan book with an average duration expectation (how frequently they expect mortgages to be refinanced) - when yields go higher, there is little incentive to re-mortgage so the effective duration of the loan book increases and so the mortgage companies sell more treasuries to hedge that duration exposure, amplifying the sell off I think the pressure remains on bonds without intervention Knee jerk, an oil sell off on some resolution in Iran or on the SOH will help pull yields lower on lower inflation and Fed hike expectations, but that impact is likely short lived given the other factors noted above Obviously Bessent started this “intervention” with the buybacks, but he’s going to need a bigger boat! My expectation after Trump and Xi playing nicely is that China will agree to buy treasuries as part of any deals they have made as well as weaken the dollar (think the G20 finance minister meeting on the 1st of September there was some agreement on the dollar. USDJPY collapsed straight after that) The key point however is this all leads to financial repression Bitcoin should continue to power higher and gold will as well once oil is flowing again Equities will continue higher both on the debasement trade as well as the “run it hot” credit expansion maintaining multiples - Trump already said they can’t afford to slow down on the AI race so no one is bursting that bubble any time soon My expectation if lower oil and China help doesn’t cap off yields is Bessent will more aggressively step up buy backs and issue bills in their place Market gets stuffed full of t bills and we’ll see some repo funding stress again (which will see risk temporarily wobble) Fed will then be forced to step up the RMP purchases to like 50bn a month or something like that and that will really send Bitcoin higher US will get caught in the BoJ type paradox where they’re hiking rates on inflation but buying bonds to control the yield curve Dollar will weaken heavily, at least against harder assets like gold, Bitcoin and equities (other currencies facing the same problems so FX on the surface might look relatively stable) So Bitcoin seems a “heads I win, tails you lose” trade Solution on Iran, oil collapses and pulls yields and dollar lower (with a helping hand from China) as market prices out Fed rate hikes (and maybe prices cuts) Risk rips and Bitcoin trades on that “right tail” risk-on scenario (although the bond market will remain under pressure given the deficits and competition for duration capital in the AI race) Or No Iran solution and current status quo dynamic remains Yields continue higher sparking a flood of more liquidity as the Treasury and the Fed combine to financially repress and control the yield curve Bears like to say “they’ll crash equities to save the bond market” But they’re effectively crashing the bond market (by not reigning in deficits alongside the need to continue raising capital to fund the Ai buildout) to provide the cover to inject the liquidity to subsequently save the bond market! The “debasement trade” is going to be running on steroids driving equities and crypto much higher