Shuli Ren, Bloomberg
For some on Wall Street, the investing world is already moving toward a de-facto gold standard.
Look no further than foreign official reserves. A relentless rally means that at current prices, global central banks have more investments in the precious metal than in US Treasuries. From China to India to Poland, governments that have been purchasing gold since Russia’s invasion of Ukraine in 2022 are happily sitting on mountains of capital gains.
This observation alone should give US Treasury Secretary Scott Bessent the chills. The self-proclaimed US top bond salesman has to once again worry about wooing investors, even though, in theory, his department is facing less financing pressure this year.
The debasement trade, whereby investors offload major sovereign debt and their denomination currencies for fear that they are being devalued, is getting a second wind. Last week, tremors in Japan’s bond market and the spillover to Treasuries prompted speculation of co-ordinated currency intervention, a rarity since the late 1990s.
Last April’s post-Liberation-Day playbook came back in force, with the dollar once again on the back foot as Europe threatened to weaponize its US debt holdings over Greenland. Meanwhile, industrial metals from silver to copper have rallied alongside gold.
Going into 2026, family offices and retail investors were already looking for more creative ways to hedge their equity holdings. The classic 60/40 portfolio model, where bonds serve as a cushion against stock selloffs, failed to work during the 2022 post-Covid downturn.
As such, strategists have been proposing alternative portfolios. The so-called 60/20/20 model advocates that investors sell half of their fixed-income investments and put 20% into precious metals, led by gold. This could, in part, explain why gold is holding above $5,000 an ounce this week.
If more wealthy individuals buy into this narrative, it would spell disaster for the US Treasury. As of March 2025, the latest month for which a detailed breakdown is available, the domestic mutual fund industry alone held $4.4 trillion of US debt, multiple times higher than Japan’s $1.1 trillion or China’s $765 billion.
In other words, Tokyo repatriating its overseas money or Beijing weaponizing its holdings is peanuts if American households decide to migrate into precious metals.
What this means for the Treasury is that a larger share of its borrowings will have to be in T-bills, debt that matures in a year or less. One can expect robust demand, as the Federal Reserve has started buying again. Inflows from money-market funds may also continue; advocates of the 60/20/20 model tend to prefer short-term fixed income to Treasury bonds.
But the problem with having too much short-term debt is that it makes borrowing costs more variable. This is why historically, the Treasury reduced the share of T-bills during economic expansions — to leave room for big increases during downturns. That flexibility is now gone. As of the end of 2025, bills represented about 22% of all outstanding marketable Treasury debt, well above the levels seen in the 2010s.
Before becoming Treasury secretary, Bessent openly criticized his predecessor Janet Yellen for issuing more short-term debt. Now he has little choice but to do the same, constantly worrying about America’s cost of borrowing. The debasement trade is no longer a headache that will go away on its own; it has become a long-term ailment.
[Abridged]
Courtesy Bloomberg/Shuli Ren
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