The US Treasury just announced it's going to start buying back its own government bonds. That should sound strange to you, because it is. The US also crossed $40 trillion in national debt this week, and the 30-year Treasury yield has spiked to its highest level since 2007, just before the last financial crisis.
These three things are connected, and understanding how gives you a much clearer read on where the US dollar, and precious metals, are heading next.
Why the Bond Market Matters More Than People Realise
A bond is just a loan with an interest rate attached. Governments issue bonds to raise money, and investors buy them in exchange for a return. The problem right now is that the interest rate on offer in the US bond market isn't attractive enough to pull in buyers from the free market.
Put yourself in an investor's shoes. The US government is offering around 5 percent, against a backdrop of persistent inflation and a currency that's been weaponised in ways it never used to be. Russia found out what happens to US Treasury holdings when a nation falls out of favour with Washington. That risk is now priced in, whether the US likes it or not.
Why the Treasury Is Buying Its Own Debt
Treasury Secretary Scott Bessent has confirmed the government will buy back billions of dollars of its own bonds. On the surface it sounds like routine liquidity management. In reality, it's the government stepping in because the market won't buy enough of its debt at the price the government wants to pay.
Why does that price matter so much? Because the US can't afford higher interest rates on $40 trillion of debt. Think about it the way you'd think about your own finances. If you were maxed out on your mortgage, your credit cards, and your personal loans, and the bank came back wanting to lift your rate, you'd be doing everything in your power to stop them. That's essentially where the US government sits, except it has a lever ordinary borrowers don't: it can step into the market and buy its own debt to keep rates artificially low.
Stanley Druckenmiller's Warning
Stanley Druckenmiller is one of the most respected investors of the past 50 years, averaging 30 percent annual returns for his clients with zero losing years. When he writes a Wall Street Journal op-ed titled "Let the Bond Market Speak" and calls a government strategy a mistake, it's worth paying attention.
Druckenmiller's argument comes down to three points. First, this is price manipulation, not liquidity management, and the market has already pushed back. Yields dropped briefly after Bessent's announcement, then roundtripped straight back up, which tells you the market isn't buying the intervention. Second, governments that defend prices against fundamentals always lose eventually. Third, artificially suppressing long-term rates takes the pressure off politicians to actually deal with the debt problem. It's a subsidy for procrastination, and it just kicks the can further down the road.
The Japan Comparison
This isn't the first time a major economy has tried to fight its own bond market. Japan has been doing it since the late 1990s. By 1999, the Bank of Japan had slashed rates to zero, and they stayed there for roughly two decades. Japan's 30-year yield has since broken sharply higher, and the effects on Japan's currency and asset prices have been dramatic.
Since 2021, the Japanese yen has fallen from around 103 to the US dollar to roughly 159 today. Gold priced in yen has gone from about 143,000 yen per ounce in 2018 to around 736,000 yen per ounce now. If the US dollar follows the same trajectory as the yen, and there's a genuine case that it will given the US now holds the same central role in the global financial system that made this possible, the read-through for gold priced in US dollars is significant.
Why I Hold the Majority of My Stack in Silver
Gold gets most of the headlines, but I keep the bulk of my own portfolio, about 65 percent, in silver. Historically, silver massively outperforms gold in the second half of every precious metals bull market, and that's exactly what played out again last year. Silver tends to move like gold on steroids once the broader trend is established, and given everything happening in the bond market right now, I think we're firmly in that kind of environment.
This is not financial advice. This is insight into what I do with my own money, not a recommendation for what you should do with yours.
What a time to be alive.
Sam from Liberty Bullion.
