Author｜Momir @ IOSG

Core Judgment: Washington will most likely choose to maintain the stability of the government debt market and the AI investment cycle, at the cost of allowing inflation to remain elevated for a longer time. This is a continuous tailwind for both gold and BTC: as it releases liquidity, it also takes duration risk off the balance sheets of the private sector.

The most crucial macro price today is no longer the federal funds rate, but the yield investors are willing to accept for holding long-term US Treasury bonds.

As of August 24, the 10-year Treasury yield was about 4.70%, while the 30-year yield had recently touched around 5.23%, nearing a 20-year high. This upward movement cannot be explained by a single factor. It is a combination of several forces: persistent inflation risks, continuous fiscal supply expansion, thinning marginal buying interest for long durations, and a new competitor for funds: AI infrastructure. The result is that investors demand higher compensation to hold long bonds.

To suppress the long end, the Treasury announced it would at least double the cap on liquidity-support repos. The news caused a brief decline in yields, but they could not be sustained. This indicates that the underlying supply and inflation problems cannot be alleviated by a few billion dollars in repos.

Why US Treasuries Are under Pressure

The war in Iran is a catalyst on several levels: it raises oil prices, intensifies cost pressures, and may suppress actual growth and tax revenue. It elevates spending expectations: the gap in armament supplies has been exposed, and adapting to a new form of warfare requires investment.

AI is a catalyst, but it acts in a completely different way: significant investment will boost economic growth and short-term inflation. Overall, this is a good thing because it increases the possibility of "reducing the debt ratio through growth." On the other hand, these investments have a massive appetite for capital, and this demand has started to spill over into the bond market. Healthy balance sheet mega-cloud companies are now competing with the Treasury for cash in what used to be a government-dominated maturity segment.

The Bank for International Settlements estimates that by 2025, the total bond issuance from mega companies will exceed $100 billion, primarily in long maturities. An analysis from the Dallas Fed used about $300 billion to represent the investment-grade issuance scale related to AI. After adjustment for duration, this corresponds to a maximum of $360 billion in 10-year equivalent duration.

So, in my view, the United States is facing a difficult trilemma. Increasingly obvious is that strictly controlling inflation is the corner that is politically easiest to sacrifice.

Current US Treasury Secretary Yellen's Response: First Protect the Treasury Market

Yellen's recent actions show how closely she is watching the bond market.

• Support the yen, reducing the risk of Japan being forced to sell US Treasuries. Japan is the largest foreign holder of US Treasuries. To support the yen, it needs dollars, and selling US Treasuries is one way to get dollars: but this would amplify pressures on the Treasury market. So, by supporting the yen, it also lowers the probability of Japan selling US Treasuries to intervene.

• Repo liquidity for long durations. Repo does not equal debt cancellation. If new short-term Treasury bills are used to finance it, it changes the maturity structure of government debt: duration decreases at one end, while short-term notes increase at the other.

• Shifting issuance to the short end is likely the next step. In 2023-24, under Yellen's tenure, the Treasury relied heavily on short-term bills when financing needs soared. In a 2024 paper, Stephen Miran and Nouriel Roubini referred to this practice as "aggressive Treasury issuance." Their argument is that about $800 billion in short-bill issuance beyond the conventional path has withdrawn duration from the market, having a similar effect to "invisible QE," which corresponds to a loosening of financial conditions roughly equivalent to a one percentage point rate cut; they also accuse the Treasury of using this to bolster Biden’s electoral prospects in 2024. The possibility of Trump’s Treasury adopting similar measures is increasing.

If these operations proceed as expected, it could bring about significant liquidity, reigniting the "currency depreciation trade."

Gold Has Secured Its Place

The recent rise in gold is not merely an inflation trade. From August 1, 2024, to August 24, 2026, the price of gold rose from $2,455 per ounce to $4,664 per ounce, an increase of about 90%. The drivers behind this include: a decline in trust in the dollar as a policy weapon, persistent inflation concerns, and perhaps the most crucial factor: a depreciation logic, expanding the money supply, which may be the only politically feasible exit from this debt cycle.

Is Bitcoin Qualified to Enter the "Depreciation Hedge Sector"?

Not yet, but the recent wave has made this question worth serious discussion.

In the last cycle led by gold, from October 1, 2025, to the peak of gold on January 29, 2026, gold rose 39.6%, while Bitcoin dropped 30.4%. For an asset that brands itself as "digital gold," this performance is disappointing.

The recent price action has been different. From August 18 to 24, Bitcoin rose 22.2%, while gold rose 5.9%. This wave accelerated after the Treasury increased long-end repos. But Washington was also promoting crypto legislation during the same week, so the attribution is not pure. If the market treats it as an invisible QE trade rather than merely a depreciation trade, then it makes sense for Bitcoin to outperform, and it is more likely to continue: when global liquidity expands, the reaction of crypto assets is often strong.

Conclusion, and What Possibilities Could Overturn It

This trilemma does not mean that inflation will certainly go out of control or that formal yield curve control is imminent. It is merely a framework to clarify where the constraints lie.

If inflation continues to exceed targets, deficits remain around 6% of GDP, and borrowers related to AI keep increasing long-duration supply, then the cost of simultaneously maintaining Treasury market stability and the growth cycle will increasingly manifest as: shorter debt maturities, normalization of liquidity support, and tolerance for higher inflation risks. This is favorable for gold and BTC.

Conversely, the scenarios that would weaken this judgment are: inflation falling to around 2%, Congress presenting a credible fiscal path, AI infrastructure becoming self-financing, or private demand absorbing bond issuance without demanding higher-term premiums.

So the next question for the market shouldn't be "when will the Fed cut rates," but rather: which corner of the triangle will Washington allow to break first? If the Treasury accelerates this duration shift, Bitcoin will face a more sustained tailwind.