The debasement trade returns to Wall Street with fresh urgency, driven by a confluence of soaring long-dated Treasury yields, a weakening dollar, and a Treasury Department that has quietly expanded its bond buyback programme in ways the market is only beginning to price.
Gold touched three-month highs on Monday, capping a fifth consecutive weekly gain and putting August on course for its biggest monthly rise since 1999. Bitcoin added 2% on the same day, reaching its highest level since May, after surging 22% across three days last week, its largest such rally since 2023. Overnight Tuesday, the cryptocurrency briefly touched $80,000.
The proximate trigger was Treasury Secretary Scott Bessent’s decision to double the maximum size of individual bond buyback operations, from $2 billion to at least $4 billion. What the headline figure obscured was the broader scope of the changes.
Why the Debasement Trade Returns Now
According to the Treasury’s August buyback press release, the increased maximum takes effect on 9 September 2026 and runs through 4 November 2026, when the next Quarterly Refunding will determine future sizes. The August 2025 Quarterly Refunding Statement also reveals that Treasury increased the frequency of liquidity support buybacks in the 10-to-20-year and 20-to-30-year nominal coupon buckets from two times per quarter to four times per quarter, and raised the annual cap on cash management buybacks from $120 billion to $150 billion.
Treasury has been conducting regular buybacks since May 2024, according to February 2025 Treasury Borrowing Advisory Committee minutes, but the latest expansion is a step change in ambition. Two senior Treasury officials told CNBC that the department could also deploy its General Account to help fund the plans.
‘The size of the Treasury purchases announced so far by Bessent are trivial in comparison to the size of the overall market, but the signalling effect was very powerful,’ said Stephen Coltman, head of macro at 21Shares, a crypto-focused exchange-traded fund creator.
That signal landed against a backdrop of fiscal numbers that are difficult to ignore. The Congressional Budget Office’s July 2025 Monthly Budget Review put the federal budget deficit at $1.6 trillion in the first ten months of fiscal year 2025, some $109 billion wider than the same period in fiscal year 2024, with revenues up $263 billion (6%) and outlays rising $372 billion (7%). The CBO’s August 2025 update projects the full-year deficit at $1.8 trillion, even after accounting for roughly $130 billion in expected outlay reductions tied to student loan modifications under the 2025 reconciliation legislation.
That legislation, signed on 4 July 2025, also raised the statutory debt limit by $5 trillion, according to a separate CBO analysis. Total federal debt has already crossed $40 trillion.
Through the third quarter of fiscal year 2025, federal receipts reached $4.01 trillion, up $254 billion year-on-year, while outlays hit $5.3 trillion, up $318 billion, with higher interest costs and inflation adjustments to transfer payments doing most of the damage, per Treasury Borrowing Advisory Committee meeting minutes.
Bond Market Pressure and the Dollar’s Role
The 30-year Treasury yield surged last week, briefly reaching almost 5.34%, a level not seen in nearly two decades, up from 4.82% in late June. Yields dipped on the buyback announcement, then rebounded, a sequence bond investors read as a verdict that Bessent’s moves fell short.
‘Markets are saying something,’ wrote billionaire philanthropist and former energy trader John Arnold on X last Friday. The weaker dollar, lower Treasury prices, and strengthening hard assets are ‘all part of the debasement trade,’ he said.
Nohshad Shah, Citadel’s head of fixed income sales for Europe, the Middle East and Africa, warned in a Monday note that Treasury intervention could ease bond-market stress while amplifying dollar weakness. A softer dollar, he noted, risks loosening financial conditions at a moment when US inflation has remained above the Federal Reserve’s 2% target for five years. ‘The bond market’s message is straightforward: fiscal or monetary policy should be tighter,’ Shah wrote. ‘Households may ultimately pay for policymakers’ unwillingness to fix the roof whilst the sun is shining.’
Fed funds futures now reflect about a 56% probability of a rate rise at the Fed’s October meeting, up more than seven percentage points from a week earlier, according to CME’s FedWatch tool.
Against that backdrop, the debasement trade returns to favour among some of the largest names in markets. Deutsche Bank analyst Michael Hsueh said gold could surpass his target of $4,800 an ounce, a level that requires only a further 3% or so from where it closed last Friday. Ray Dalio, founder of Bridgewater Associates, recommended investors remain overweight gold and bitcoin, suggesting gold could represent as much as 15% of a model portfolio. ‘The government’s financial condition is at an inflection point,’ Dalio wrote on LinkedIn. ‘If this is not dealt with now, the debts will build up to levels where they can’t be managed without great trauma.’
Not everyone is convinced. Alexander Lis, investing chief at Social Discovery Ventures, cautioned that it is probably too early to endorse the trade unless the Federal Reserve signals it will accommodate the Treasury’s direction.
The next Quarterly Refunding on 4 November 2026 will clarify how far Bessent intends to push the buyback programme. That date, more than the next Fed meeting, may be the moment that settles whether the debasement trade has legs or simply a loud echo.
