GM. This is Milk Road, the newsletter that drops macro alpha into your inbox every Tuesday to blow you away with government bond buybacks, ballooning deficits, and foreign exchange interventions, and most of all, what does all of this have to do with crypto?
Here’s what we’ve got for you today:
- ✍️ The yield cap trap.
- ✍️ Intervention epidemic.
- ✍️ The debasement trade strikes back.
- 🎙️ The Milk Road Show: Bitcoin at $79K: Bottom Confirmed or One More Crash Coming?
- 🍪 Capital vs labor has always been the defining political battle, but we're about to replace that entirely.
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THE YIELD CAP TRAP
When governments run massive primary deficits, debt servicing costs skyrocket.
That is a nice way of saying that we’ve been spending way more than we have for so many decades that the interest payments are getting so expensive we’re struggling to pay them.
As a result, people are doubting that the governments that have been doing this will be able to pay back their debts. This means they are less interested in buying government bonds.
This dynamic has been pushing bond yields up. Higher yields attract buyers, but buyers aren’t stepping in, so the yields keep rising.
Enter U.S. Treasury Secretary Scott Bessent. He has aggressively doubled long-end Treasury buybacks (10- to 30-year bonds) to keep borrowing costs artificially suppressed.
As Brookings economist Robin Brooks warns, trying to cap long-term yields without fixing underlying fiscal deficits is "playing with fire".
- Mechanism: If bond prices aren't allowed to clear naturally, macroeconomic pressure spills straight into foreign exchange markets.
- Result: Instead of bond yields spiking, the U.S. Dollar takes the hit. The dollar has dropped about 10% on a broad trade-weighted basis.
- Blueprint: This mirrors Japan’s Yield Curve Control (YCC) playbook, where strict bond yield caps triggered a multi-year slide in the Yen.
So, how do governments stop their currencies from collapsing?
Great questions, I’m so glad I asked it.
INTERVENTION EPIDEMIC
You may have noticed how a lot of governments are getting a lot more involved in bond and currency markets these days.
The fancy central banker word for this is an “intervention.”
The more honest word for it is “panic.”
Recent interventions highlight just how constrained policy authorities have become:
- The Euro-Yen Twist: During joint U.S.-Japan operations to support the Yen, the U.S. Treasury used Euro reserves to buy Yen instead of liquidating U.S. Dollar assets. Why? Selling Treasuries would have pushed U.S. yields up. Proving Bessent prioritized bond market insulation over standard FX defense mechanics.
- Undervalued renminbi: China's Real Effective Renminbi (RMB) remains 10% to 20% undervalued, driving non-commodity trade surpluses toward 3.5% of GDP.
- Argentine swap line: The U.S. Treasury launched a $20B swap facility with Argentina, a rare intervention outside a global financial crisis for a sovereign issuer with a history of defaults.
Source: Milk Road
Things are getting way out of whack, and these governments are running out of options to maintain normalcy.
So, what happens next?
Capital fleeing these sinking ships is looking for a hard asset that is safe from debasement.
If only there were a peer-to-peer electronic cash system… 😀
THE DEBASEMENT TRADE STRIKES BACK
With fiat currencies taking the strain of fiscal doom, institutional capital is pivoting into non-sovereign hard assets and low-debt havens:
1. Gold: Gold has surged over 65% past $4,500/oz. Uniquely, gold is rallying alongside high nominal yields as central banks and funds hedge against debt growth and currency weaponization.
2. Bitcoin (my favorite): Derivatives markets reflect heavy call option open interest across $80,000 to $100,000 strikes, signaling structural demand as a non-sovereign macro hedge.
3. Low-Debt havens: Capital is accelerating out of high-deficit nations into fiscally conservative economies like Switzerland (CHF) and Denmark (DKK).
The Bitcoin bear market may not be totally over yet, but the bottom is certainly forming.
All of this sets up the foundations of a long and sustained increase in demand for Bitcoin, or, in other words, a new bull market.
Stay patient and make your plans now. The bulls are coming.
If you want to see how the other Milk Road PRO analysts and I are positioning for the next crypto bull market, join us in PRO right now for just a buck!
In the meantime, stay safe, stay educated, and stay bullish!
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Raoul Pal: Capital vs labor has always been the defining political battle, but we're about to replace that entirely.
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