Bond Market Shakes U.S. Fiscal Illusions — Bitcoin and Gold Poised to Benefit
The U.S. bond market is revealing cracks in the long-held illusion of America’s fiscal stability and safe-haven status, setting the stage for assets like bitcoin (BTC) and gold to gain favor.
There’s an old saying: “If you want to understand America, watch a pro wrestling match.” While a bit tongue-in-cheek, this analogy fits the current financial landscape, where the concept of kayfabe — the scripted illusion in pro wrestling that audiences accept as real — mirrors U.S. fiscal dynamics.
For over a decade, despite repeatedly hitting the self-imposed debt ceiling, the U.S. government has continued to borrow at ultra-low yields, sustaining the illusion that it is a rock-solid borrower. Investors kept faith, lending money even during economic stress, much like fans buying into wrestling’s staged drama.
But now, bond investors are pulling back the curtain, just as famed trader Paul Tudor Jones predicted, challenging this fiscal narrative and boosting the appeal of store-of-value assets like bitcoin and gold.
Bonds Break the Illusion
The spotlight this week falls on the U.S. 30-year Treasury yield surpassing 5%, a level that some fear could unsettle markets. Yet, this is not unprecedented; yields reached similar heights last October.
What’s more revealing is the rise in yields on Treasury Inflation-Protected Securities (TIPS), which adjust their principal for inflation. The 30-year TIPS yield recently exceeded 2.7%, the highest since 2001, signaling investors demand a real return well above inflation to hold government debt long-term.
This surge occurs even as consumer inflation slows toward the Federal Reserve’s 2% target and inflation expectations remain stable, suggesting investors’ concern centers on fiscal policy risks rather than inflation or tariffs.
“The world is saying, ‘We don’t trust your long-term fiscal trajectory and want to be compensated for it,’” explained analyst EndGame Macro on social media.
As of May 19, U.S. national debt stood at $36.22 trillion, with projections expecting a $22 trillion rise over the next decade, pushing debt-to-GDP ratios toward 156% by 2055. This escalating debt burden threatens to weigh down future economic growth, according to EY’s QUEST analysis.
Brookings Institution’s Robin Brooks highlights the 5-year forward real interest rate, now at 2.5% — a level not seen since 2010 and exceeding rates during past Federal Reserve tightening cycles. This signals bond markets are increasingly skeptical of the U.S.’s fiscal health, urging urgent reforms.
Currency and Bond Markets Decouple
Another sign the fiscal “kayfabe” is fading is the breakdown of traditional correlations between currency and bond markets. Normally, rising bond yields support the home currency, but the euro has strengthened sharply against the dollar despite rising U.S. yields.
This divergence implies growing investor caution toward U.S. assets amid fiscal concerns, reflected in bullish options betting on the euro versus the dollar — a rare scenario since the COVID-19 pandemic began.
Bitcoin and Gold in the Spotlight
Historically, governments with rising debt problems have resorted to inflation to erode debt burdens — a path likely to be repeated, benefiting hard assets like gold and bitcoin.
Paul Tudor Jones has highlighted bitcoin, gold, and commodities as preferred stores of value over long-term bonds amid this environment. Economist Russell Napier warned two years ago of an era marked by financial repression and persistent inflation — conditions favorable to bitcoin and gold.
Financial repression, which includes inflation rates exceeding savings returns, capital controls, and interest rate caps (such as yield curve control), can push investors toward alternative assets. Yield curve control involves central banks capping long-term bond yields, often by buying bonds to keep rates at target levels.
Arthur Hayes, founder of Maelstrom, predicts that yield curve control will arrive in the U.S., igniting a new rally in bitcoin. He sees recent tariff rollbacks as evidence the system is too leveraged for tough reforms, meaning more liquidity injections are likely — effectively “QE in disguise” — benefiting bitcoin.
Bumps Ahead, But the Trend Is Up
The bullish outlook for bitcoin does not mean a smooth ride ahead. The U.S. Treasury market underpins global finance, and spikes in bond volatility could trigger risk-off moves, pushing investors to sell all assets, including bitcoin.
However, the MOVE index — measuring expected Treasury volatility — currently trends downward, suggesting market stress remains manageable for now.
