Washington is currently wrestling with a critical macroeconomic decision that involves stabilizing the Treasury market, sustaining the AI investment cycle, and containing high inflation. The prevailing logic appears to favor sacrificing inflation control in exchange for releasing liquidity and shifting duration risk, a structural shift that creates a persistent tailwind for gold and Bitcoin.
The surge in long-end Treasury yields is not driven by a single factor but is the result of multiple pressures stacking together. As of August 24, the 10-year Treasury yield stood at approximately 4.70%, while the 30-year yield had previously touched 5.23%, approaching two-decade highs. This upward trend stems from stubborn inflation risks, continuous fiscal supply expansion, shrinking marginal demand for long-duration assets, and intense competition for capital from AI infrastructure. Investors are demanding higher risk premiums to hold long-term bonds, keeping yields elevated.
In response, the U.S. Treasury Department announced it would at least double the cap on liquidity support repurchase operations in an attempt to push down long-end rates. Although yields briefly fell after the announcement, they failed to stabilize, indicating that repurchase operations worth only a few billion dollars cannot resolve the underlying supply glut and inflation issues.
Geopolitical conflicts and AI capital expenditures are jointly amplifying the deep impact on the bond market. The Iran war has pushed up oil prices and intensified cost pressures while exposing defense supply gaps, forcing governments to increase spending to address new forms of warfare, thereby suppressing real growth and tax revenues. Meanwhile, AI serves as another major catalyst, driving economic growth and short-term inflation through massive investment. While this helps dilute debt ratios through growth, its enormous capital demands are spilling over into the bond market. Balance-sheet-healthy hyperscale cloud providers have begun competing with the Treasury for funds in maturity segments traditionally dominated by the government. The Bank for International Settlements estimates that hyperscalers' total bond issuance will exceed $100 billion in 2025, primarily concentrated in long-duration instruments. Dallas Fed analysis indicates that AI-related investment-grade issuance stands at approximately $300 billion, which, after duration adjustment, equates to as much as $360 billion in 10-year equivalent duration.
This massive duration mismatch has plunged the United States into a trilemma of strictly controlling inflation, maintaining Treasury stability, and supporting AI growth, with inflation control being the politically easiest target to sacrifice. Treasury Secretary Bessent's strategy focuses on protecting the Treasury market. His tools include supporting the yen to reduce the risk of Japan, the largest foreign holder of U.S. Treasuries, being forced to sell, since Japan needs dollars for currency intervention and selling Treasuries is one way to obtain them. Additionally, Bessent is using repurchase operations on illiquid long-end assets and funding them with newly issued short-term bills, altering the government's liability maturity structure by reducing long-end duration and increasing short-term notes. This shift toward the short end resembles the approach during the Yellen era in 2023-24, when there was heavy reliance on short-term bills amid surging financing needs.
Stephen Miran and Nouriel Roubini described this in their 2024 paper as "aggressive Treasury issuance," noting that approximately $800 billion in short-term issuance beyond the conventional path drains duration from the market, with an effect comparable to "stealth QE." The easing of financial conditions is roughly equivalent to a one-percentage-point rate cut, and they accused the approach of being designed to boost the Biden administration's 2024 election prospects. With the Trump administration likely to adopt similar operations, the "currency debasement trade" may be poised for a comeback.
Gold has already validated this logic. From August 1, 2024, to August 24, 2026, gold prices surged from $2,455 to $4,664 per ounce, a gain of 90%, driven by declining trust in the dollar, inflation concerns, and the political necessity of expanding the money supply to escape the debt cycle.
The divergence between Bitcoin and gold performance reveals the market's repricing of "digital gold" attributes. In the previous rally led by gold, from October 1, 2025, to the gold peak on January 29, 2026, gold rose 39.6% while Bitcoin fell 30.4%, underperforming significantly. However, recent price action has reversed. From August 18 to 24, Bitcoin surged 22.2% while gold rose only 5.9%. This acceleration occurred after the Treasury intensified long-end repurchase operations, though concurrent crypto legislation efforts in Washington also played a role. If the market interprets this as stealth QE rather than a pure debasement trade, Bitcoin's outperformance of gold may continue, as crypto assets respond strongly to global liquidity expansion.
If inflation remains persistently above target, the deficit stays near 6% of GDP, and AI borrowers keep adding long-duration supply, the cost Washington pays to preserve Treasury stability and the growth cycle will manifest as shorter debt maturities, normalized liquidity backstops, and tolerance for higher inflation—all of which are bullish for gold and Bitcoin. Conversely, if inflation falls back to 2%, Congress establishes a credible fiscal path, AI infrastructure achieves self-financing, or private demand absorbs interest-bearing debt without premium, this logic would be weakened.
Market focus should shift from Fed rate cuts to Washington's choices in this trilemma. If the Treasury accelerates duration transfer, Bitcoin will enjoy a more sustained tailwind.