There is a popular saying, who says: “If you want to understand America, watch a professional wrestling match.” Although it can be Glib and a little too simplified, it seems to “ring” true, because the American financial markets now present features similar to the concept of pro-wrestling of “Kayfabe”.
Kayfabe means an illusion that the action scripted in the ring is real, the public buying the same thing while suspending his belief for entertainment.
A similar dynamic has been taking place on the financial market for at least a decade, where the United States government has repeatedly reached its self-imposed debt ceiling or its borrowing limits, a sign of budgetary crisis. However, investors have continued to lend money to the government to ultra-basic yields, including during stressful in the world economy, now Kayfabe that government is a safe and reliable borrower.
Recently, however, participants in the bond market exhibited Kayfabe, as the legendary merchant Paul Tudor Jones had warned him, weakening the illusion and strengthening the arguments to invest in assets with a Haven call and a store of values like Bitcoin (BTC) and gold.
Obligations explode Kayfabe
The big news of this week is that the yield of the US treasury of 30 years at the top of 5% and how it could destabilize the financial markets. However, we already went there in October from last year, according to the source of tradingView data.
Read more: Treasury yield violations in the United States at 30 years 5% in the middle of the moody rating retrochosis, budgetary concerns
The real story is the point of yields on titles protected by treasury inflation (advice). Their main amount is adjusted for inflation.
The 30-year-old advice has recently increased above 2.7%, the highest since 2001. In other words, investors require a yield of at least 2.7% higher than inflation in exchange for lending money to the government for three decades.
This occurs while the growth of the consumer price index (IPC) continued to slow down to the target of the Fed, and the prospective inflation measures based on the market as Breakevens remain stable in the familiar ranges seen since 2022. In addition, the inflationary tariff war and the United States War.
Divergence is a clear indicator that investors are looking for the most expensive real performance due to the concerns about fiscal policy and not inflation, prices or growth dynamics.
“The world says that we do not trust your long -term budgetary trajectory and we want to be offset for this,” said the analyst’s pseudonym macro at the end of the game in an explanator on X.
Since May 19, the American national debt, also known as the total public debt, amounted to 36.22 billions of dollars. It is expected to increase by $ 22 billion over the next 10 years, with Debt to GDP reaches 156% by 2055according to Analysis carried out by the economy and quantitative statistics of EY (quest) practical. The Quest report also indicated that the emerging debt will weigh heavily on economic growth.
Robin Brooks, principal researcher of the Global Economy and Development Program at Brookings Institution, underlined the real interest rate of five years as proof of bond actors questioning budgetary sustainability.
“The real interest rate of 5 years forward is now 2.5%, which is the highest level which dates back to 2010. Most importantly, it far exceeds the levels observed during the Fed Colonish hiking cycle, such as the” Typerum “of 2013 or the 2022/23 hiking cycle after the covid flation trache”, said Brooks Brekev.
“It makes it all the more likely that many years of irresponsible budgetary policy catches up with the United States, adding the urgency to the need to put our tax house in order,” added Brooks.
FX-Bond correlations are dead
Another sign that the market wakes up on the fact that the Emperor has no clothes is the rupture of the traditional correlation between foreign exchanges (Forex) and bond markets.
As a general rule, the increase in bond yields increases the call for the original currency, which made it appreciate against other fiduciary currencies. For example, EUR / USD has historically followed the propagation between yields on German and American state obligations of two years.
But no more now. The EUR / USD has increased sharply since the beginning of April despite the narrowing of the two -year return differential, led by a strong increase in American yield of two years. The rupture of correlations indicates that the concerns concerning budgetary stability have probably prompted investors to move away from American assets.
The degree of lowering is obvious on the options market, which is now the most optimistic in EUR / USD since COVID. It is unusual that the options market put a greater increase in the euro than the disadvantage, according to Brooks.
Bitcoin and Haussiers gold
Historically, the governments faced by budgetary concerns have used inflation and reimbursement of debt by printing more money. They will probably resume the same route, encouraging the demand for hard assets such as gold and bitcoin.
“All the roads lead to inflation. This is historically the way in which each civilization has come out, it is that they inflated their debts,” said Tudor Jones last year, while naming BTC, gold and basic products as a preferred participations in long -term obligations.
Two years ago, economist Russell Napier expressed a similar opinion, saying: “We must prepare for an era of increasing financial repression and constant inflation.”
Financial repression refers to government policies that lead private sector funds to the public sector to help reduce national debt. The scenario is characterized by the inflation rate exceeding the yield of economies, capital controls and interest rate ceilings, which could all increase well for bitcoin and gold.
Interest rate ceilings are generally implemented by policies such as control of the yield curve, which has the central bank targeting a specific level for long bond yields, let’s say 5%. Each time, the yield seeks to exceed said level, the central bank increases bond purchases, injecting liquidity into the system.
Arthur Hayes, CIO and founder of Maelstrom, said that control of the yield curve will finally be implemented in the United States, launching a record rally in Bitcoin.
Hayes recently said that President Donald Trump’s decision to water the trade rates after the panic of early April in the financial markets is proof that the financial system is too much exploited for difficult reforms and justify an additional creation of money.
“They can call it as they want – just don’t call it qe – but that has the same effect: liquidity increases and the advantages of Bitcoin,” said Hayes.
The imminent rally will not be fluid
The bruise for BTC does not necessarily mean that there will be no hiccups.
The US Treasury Market serves as the basis of global finance and increased volatility of these obligations could cause financial tightening, which could trigger a global dashboard for investors who sees investors sell all workers, including bitcoin.
To date, however, the displacement index, which represents the implicit or expected volatility of 30 days in tickets to the US Treasury, remains in a downward trend.
