Debasing the 'debasement' trade: McGeever
By Jamie McGeeverThe recent surge in gold, cryptocurrencies and stocks to record highs has sparked claims that the U.S. "debasement trade" is in full swing, but the bond and the foreign exchange markets tell a very different story.The upward swing in some "hard" assets this year is undeniable. The 50% spike in gold and even more eye-watering gains in other precious metals, such as silver and platinum suggest investors are getting anxious about something.Many have argued that this "something" is debasement - the fear that an oncoming inflationary storm could erode the dollar's purchasing power and the value of U.S. financial assets. The term "debasement trade" was coined earlier this year by analysts at JPMorgan, though they began flagging the idea last October, arguing that a Republican sweep of the White House and both houses of Congress would be bullish for gold and bitcoin due to expansionary fiscal policy. Fast forward to today, and debasement doomsayers are pointing to increased U.S. government borrowing and rising public debt projections as well as the resumption of Federal Reserve interest rate cuts at a time when inflation is about to enter its sixth consecutive year above the Fed's 2% target. But if we were primarily dealing with debasement fears, the dollar and U.S. bonds would be tumbling and Treasury yields would be spiking - and this isn't happening. WHAT DEBASEMENT?The numbers speak for themselves. The 10-year nominal Treasury yield last week broke below 4.00%, its lowest since April. In fact, Friday's 3.93% was the lowest in over a year if excluding April 4 and 7, the depths of post-"Liberation Day" tariff turmoil.The benchmark 10-year yield is down nearly 60 basis points this year. Even the 30-year yield, which is much more sensitive to the de-anchoring of long-term inflation expectations, has fallen around 20 basis points this year, hardly a sign investors are running for the hills. It's a similar story in "TIPS". The breakeven inflation rate on 10-year TIPS, essentially an estimate of where bond investors see inflation a decade from now, last week fell to 2.275%, the lowest since June. More significantly, the 30-year TIPS breakeven inflation rate fell to 2.21%, the lowest since May.True, the dollar had its worst start to a year on record in the first half of 2025, but it has been remarkably stable since April, with the dollar index ending last week almost exactly at its six-month average. Moreover, the dollar has significantly outperformed its G10 currency peers over the past month, as Rabobank's Jane Foley points out. "Debasement would imply a move away from the dollar and U.S. Treasuries into assets such as gold, and there is very little evidence to back up these flows," Foley says.To be sure, the dollar is being viewed more skeptically by investors than it was before U.S. President Donald Trump returned to the White House, likely because the world sees the United States as a less reliable economic partner. This is reflected in the fact that as much as 80% of portfolio inflows into the U.S. are now currency hedged, according to UniCredit estimates. All this suggests that investors still want to hitch their wagon to the U.S. economy and stock market, but not the dollar. DESPERATELY SEEKING CLARITYFears of fiat currency debasement are nothing new, especially those involving the dollar. But they have gained traction since the huge monetary and fiscal responses to the 2007-2009 global financial crisis and the pandemic of 2020-2021. And Trump's unorthodox policy agenda has only added fuel to the fire. But given how markets are actually behaving, what we may truly be seeing is a mix of central bank diversification, private sector portfolio reallocations, or simply momentum-driven buying. Ultimately then, we may be reaching peak "debasement trade". Like other popular terms this year, such as the infamous "TACO" (Trump Always Chickens Out) trade – the "debasement trade" is essentially a simple narrative that can help investors make sense of an increasingly logic-defying world. Even though the $4 trillion global crypto market and $28 trillion gold market may be emitting dollar debasement warnings, the $28 trillion Treasury market and nearly $10 trillion-a-day currency market are not. If you want a simple answer to what's happening in today's financial world, keep looking.(The opinions expressed here are those of the author, a columnist for Reuters)