The Death of U.S. Treasuries as the Reserve Asset
Since World War II, U.S. Treasuries (UST) have been the cornerstone of the global financial system. With the dollar as the dominant world reserve currency, Treasuries were considered the "risk-free" asset of choice for multinational corporations, banks, central banks, and sovereign wealth funds. The U.S. Treasury market, worth around 27 trillion dollars, has long been a symbol of stability. However, recent strategic decisions by the U.S. government, including the weaponization of Treasuries, the seizure of sovereign assets and reckless monetary policy, have triggered a seismic shift in global finance.
Consider China's recent actions: they sold $50 billion worth of U.S. bonds last quarter. Officially, China purchases $25 billion worth of gold annually. At this rate, by 2026, China will hold more gold than U.S. Treasuries. This shift underscores the declining trust in U.S. debt as a reliable reserve asset.
U.S. Treasuries are bonds issued by the Federal Reserve, and historically, there was ample demand to absorb these issuances. However, recent auctions have shown weak demand, forcing the primary buyer to be the U.S. Treasury itself. This circular process—where the Fed issues bonds and the Treasury buys them with money essentially printed out of thin air—highlights the fragility of the current system. As a result, the U.S. deficit has ballooned, accelerating at a rate of $1 trillion every quarter!
In the past five years, 7-10 year USTs returns have been -7%, while 20+ year U.S. Treasuries have returned -23%. This dismal performance occurred during a period when the money supply (M2) increased by 40% due to COVID-19, the S&P 500 index (SPY) rose by 100%, gold increased by 76%, and Bitcoin surged by 800%.
Bonds have been getting rekt over the past few years, and this trend is set to continue in real terms as money printing accelerates to fund increasing budget deficits. This is the flight to quality that BlackRock's CEO has spoken about. Serious money from central banks and sovereign wealth funds is beginning to realize what Bitcoiners have been saying for a decade: no one wants to save in an instrument with an infinite supply that can be manipulated on-demand by the Federal Reserve.
The flight to scarce assets is underway. Historically, gold was the most scarce asset, but now Bitcoin has emerged as the new standard.
