Summary of Key Points
U.S. Treasury Secretary Janet Yellen attempted to lower long-term interest rates (such as those on 10- and 30-year Treasury bonds) by increasing the purchase of these bonds. However, the effect only lasted for one day, leading to a depreciation of the U.S. dollar and a surge in the prices of gold and Bitcoin. The underlying issues include a high U.S. fiscal deficit (nearly $2 trillion) and global capital competition (governments borrowing for defense and energy, while companies borrow for AI initiatives). These structural problems have heightened market concerns about U.S. economic policies and credibility. The AI boom has both increased the demand for capital and supported the stock market. The yield on 30-year Treasury bonds at 5% has become a critical threshold. There is disagreement about whether the trend of a weaker dollar and rising gold and Bitcoin prices will continue.
1. Yellen's "Debt Rescue" Effort: A Band-Aid Solution with Limited Effect
Yellen aimed to lower long-term interest rates by purchasing more Treasury bonds, effectively the Treasury Department buying its own debt to reduce the borrowing costs for the government. Initially, interest rates did fall briefly, but they rebounded within a day and remained largely unchanged throughout the week. Why? The fundamental problems have not been resolved: the U.S. deficit is接近 $2 trillion, and rising oil prices could lead to inflation. Globally, governments and companies are borrowing heavily for defense, energy, and AI initiatives, increasing the demand for funds and preventing interest rates from falling. It’s like trying to hold a balloon without blocking the air outlet; as soon as you let go, it pops back up.
2. Dollar Depreciation, Gold, and Bitcoin Prices Rise: Market Doubts about U.S. Credibility
In the past, when Treasury bond yields rose, the dollar usually strengthened because investors believed the U.S. economy was strong or the Federal Reserve would raise interest rates, making the dollar more valuable. This time, however, the dollar depreciated by nearly 1%, gold broke above $4,600 (its highest level in three months), and Bitcoin rose 25% to exceed $78,000 in a week. The reason is simple: the market no longer sees higher Treasury bond yields as a sign of a strong economy but rather as a sign of financial problems in the U.S. (high debt levels and potential credit risks), leading to a reluctance to hold dollars. Gold, known for its inflation and depreciation resistance, and Bitcoin, now considered a safe-haven asset (although highly volatile), have both seen significant gains.
3. The AI Boom: Driving Interest Rates Up While Supporting the Stock Market
AI has become a focal point for capital competition:
- Rising Interest Rates: AI companies need substantial funds for research and development (e.g., Broadcom plans to issue $70 billion in bonds) and are indifferent to high interest rates, believing in the high returns of AI. This competition for funds prevents interest rates from falling, as seen by Secretary Yellen’s criticism of AI companies’ lack of sensitivity to rate changes.
- Supporting the Stock Market: Investors are optimistic about AI’s potential for high returns, so the stock market remains strong despite high interest rates. Analysts at Lombard Odier argue that the stock market is driven by expectations of AI companies’ earnings exceeding expectations in 2026, not just the Treasury Department’s bond purchases.
4. The 5% Yield Threshold: A Critical Point for High-Valued Stocks
The yield on 30-year Treasury bonds approaching 5% is a critical level:
If interest rates cannot be reduced, high-valued stocks (such as those in the AI sector) will face challenges. Higher bond interest rates may make investors prefer safer bonds over risky stocks. Bank of America strategists suggest that 5% is a watershed, and exceeding this level could increase pressure on highly leveraged sectors like AI companies and private lending. Ray Dalio, the founder of Bridgewater Associates, even advises reducing bond holdings and increasing investments in gold and Bitcoin to prepare for a potential U.S. debt crisis.
5. Can the Depreciation Trend Continue? Much Disagreement
Can the current trend of a weaker dollar and rising gold and Bitcoin prices continue?
- Optimists: The issues of the U.S. fiscal deficit and global capital competition remain, supporting the depreciation trend.
- Cautions: Yellen’s bond purchases are minimal compared to the overall Treasury market, and there are no new negative developments. Additionally, there are conflicts between the Treasury Department and the Federal Reserve: the Treasury wants to lower interest rates, while the Fed is focused on fighting inflation and cannot easily cut rates.
Next week, two key events will determine the direction: Nvidia’s earnings report (indicating whether AI companies are truly profitable) and the Jackson Hole Symposium (to see if the Fed will loosen its monetary policy).
In Summary
The U.S. is trying to reduce borrowing costs, but its financial problems, global capital competition, and the AI boom are preventing interest rates from falling. The market is expressing concern about the U.S. economy by selling dollars and buying gold and Bitcoin. The future direction depends on whether AI companies can deliver the promised returns and whether the Fed will compromise on its monetary policy. The analysis is written in plain language for a non-expert audience.