Last week ended with a question: could markets absorb the policy response? This week Treasury showed up with a boat, and the bond market decided it was too small.
The expanded buyback program launched on Wednesday at USD 6 billion, triple the previous pace and comfortably above the USD 4 billion floor Bessent had flagged. But markets had positioned for more. Expectations had drifted toward USD 7-10 billion, turning what should have been a supportive announcement into a disappointment.
The reaction was immediate. Yields moved higher. Bitcoin, already struggling to reclaim USD 80,000 retested the USD 76,000 support zone it has defended for last couple of weeks.
But the message matters more than the move. By selling the buyback, the market is effectively betting that USD 6 billion is Treasury’s best offer and that policymakers are prepared to tolerate higher long-end yields. We think that is the wrong read. If the objective is to stabilize financing conditions, a failed intervention is not a reason to abandon the tool. It is a reason to scale it.
With CPI this afternoon and the FOMC next week, the next few sessions will determine whether investors are right to challenge policymakers, or whether policymakers respond with more force than the market currently expects.
Macro: The Buyback That Bought Nothing
The bond market did not take the hint.
The 10-year Treasury yield rose ~20bp over the past week to 4.98%, its highest level since October 2023, while the 30-year moved back above 5.3%. Treasury’s USD 6 billion buyback failed to stem the selloff, with investors instead focusing on inflation risks and the growing supply of government debt.
Oil added to the pressure. Brent briefly traded above USD 110 this week after US strikes on Iranian tankers near Hormuz and renewed attacks on Saudi energy infrastructure. The move reignited concerns that energy could keep headline inflation elevated even as underlying demand conditions continue to soften.
Central banks are converging on the same answer. The ECB delivered a 25bp hike yesterday, prioritizing the energy-driven inflation impulse over a weak growth backdrop, and the yen has strengthened to a seven-month high as markets price a growing chance the BoJ follows next week. A hawkish BoJ alongside a hawkish Fed would tighten global liquidity conditions further and amplify volatility across rates, FX and risk assets.
That brings us to today’s CPI report, the week’s key event, and the last major data point before the weekend. Consensus expects 0.4% month-on-month headline inflation, lifted by energy, and 0.2% core. With markets now pricing roughly a 70% probability of a September hike, the hurdle for a hawkish surprise is high. A firm core reading simply validates current pricing, while a softer print risks a sharper unwind in rates and the dollar.
Crypto: Sitting on Support
Bitcoin heads into today’s CPI report sitting near a critical support zone around USD 76,000 after another week dominated by rates rather than crypto-specific developments.
The failure to reclaim USD 80,000 was a rates story. The 10-year’s push toward 5% after the buyback disappointment dragged Bitcoin towards the USD 76,000 area that has held for couple of weeks.
That leaves today’s CPI and next week’s FOMC as the two events that decide the next move. A softer inflation print would likely ease pressure on yields and support a recovery in risk assets, while a firmer reading risks another test of support as markets push rate expectations higher.
Importantly, this remains the macro environment in which we expect Bitcoin to perform well over the medium term. Rising debt burdens, persistent fiscal deficits and growing pressure on policymakers to respond to tighter financial conditions remain supportive tailwinds for scarce assets. Near term, rates are setting direction. Longer term, the forces that fueled August’s rally remain firmly in place.
Looking Ahead: CPI Today, Fed Next Week
Today’s CPI is the last major data point before next week’s FOMC.
The August rally rested on a simple assumption: policymakers would not tolerate a disorderly rise in long-end yields. The market is now testing that view. With the 10-year approaching 5%, the focus is shifting beyond the Fed and toward Treasury. The question is no longer whether policymakers respond, but how aggressive that response becomes if yields continue higher. This week’s message from the bond market was straight forward: if the objective is to stabilize financing conditions, Treasury is going to need a bigger boat.
For Bitcoin, USD 76,000 remains the key support, while ~USD 80-82,000 is the level bulls need to reclaim. Near-term volatility is likely to remain driven by rates and policy expectations. The path may be volatile, but the underlying thesis remains intact: higher debt, tighter financial conditions and greater policy pressure are not conditions we would expect to be bearish for Bitcoin.
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