A bond selloff that argues for bitcoin, not against it

Digital asset fund flows across all issuers lost momentum this week, a marked slowdown after US$11.1B of inflows since mid-July. Much of that earlier demand appears to have reflected investors buying at depressed valuations, though concerns around US fiscal sustainability have become an increasingly important part of the allocation case.

The Treasury is intervening, and it is not working

Treasury yields have continued to rise despite the government’s expanded long-end buyback programme, with 10-year yields moving above 5.3% and 30-year yields reaching 5.7%, their highest levels in more than two decades.1 Long-end liquidity-support buybacks were doubled in August to at least US$4B per operation and remain in place through early November.2 The limited effect on yields reinforces the sense that investors are focused on the underlying fiscal position rather than on short-term market support.

The Fed is being pulled in two directions

Policy signals remain unusually mixed. Some Fed officials continue to emphasise elevated inflation, others growing downside risks from the labour market. September payrolls were considerably weaker than expected and pushed the implied probability of an October hike down to 23%, from 71% three weeks ago. Markets still expect inflation rather than employment to determine the next major policy decision.