If you haven't seen by now, Bitcoin made a violent move today, lurching roughly 6% to above $68K at time of writing, blowing out more than $1 billion of shorts along the way.
Most of crypto moved alongside it (most notably ETH), while gold and silver ripped as well. Meanwhile, long-term Treasury yields fell, the dollar weakened, and stocks barely moved.
All in all, it's behavior that heralds the return of the beloved debasement trade: buying hard assets when investors believe policymakers will ultimately tolerate inflation or currency weakness to keep the economic machine running.
This move didn't come out of nowhere. The catalyst was an announcement from the Treasury that it will at least double how much it can buy back in each operation for certain 10- to 30-year Treasuries, from $2 billion to at least $4 billion beginning September 9.
Why are they doing this? Officially, Treasury wants to make these longer-dated bonds easier to buy and sell and reduce the risk of turbulence in that part of the market. The broader reason traders care is that long-term yields have remained high as inflation persists, government borrowing grows, and investors demand more compensation to lend the government money for decades. In fact, the 30-year yield hit its highest level since 2007 just yesterday.
That matters because Treasury yields set borrowing costs across much of the economy.
When investors demand a higher return to hold government debt, borrowing becomes more expensive not only for Washington, but also for businesses, homebuyers and major investment projects.
While Treasury's buybacks won't solve that problem, the government stepping in at all sends a message to Wall Street. The message reads officials are willing to intervene when stress in the bond market starts becoming uncomfortable, or so the market believes. In other words, they'll smooth it out.
If you've been on Twitter today, you may have seen plenty of calls that what transpired was the coveted "QE," or quantitative easing.
Today was not quantitative easing. Put simply, QE is when the Fed creates new money and uses it to buy bonds, putting more cash into the economy to stimulate growth and generally helping push yields lower along the way.
That did not happen today. The Treasury is buying back some of its own existing bonds while continuing to issue debt elsewhere. No new money is being created through this program.
But what matters is what today's move could imply about where policy goes next. If bond-market stress worsens, traders now see a greater chance that officials will intervene again, potentially through larger liquidity injections or eventually... QE.