Rafomac News, Tech & Trends That MatterAmerica’s public debt has surged past $40 trillion, forcing the Treasury to double bond buybacks just days after hitting this staggering milestone. Despite turmoil in traditional markets, Bitcoin has surged—outperforming tech stocks and shaking off old correlations.
Why Is the US Treasury Aggressively Buying Back Bonds?
When the US public debt crossed the $40 trillion mark in mid-August, Treasury Secretary Scott Bessant didn’t slow down—he accelerated efforts to stabilize the situation. Just days after the milestone, the Treasury doubled its bond buyback operations from $2 billion to a minimum of $4 billion per operation, targeting longer-term bonds between 10 and 30 years.
This move is more than cosmetic. The 30-year Treasury yield had hit 5.33%, its highest in 19 years, prompting the Treasury to intervene in hopes of tempering rising borrowing costs. While the intervention succeeded briefly, market forces quickly pushed rates back up, signalling deep-rooted issues.
Debt Load Rising Faster Than Expected
The size of the debt isn’t the only concern. Net interest payments are nearly $1 trillion annually—$963 billion in just the first 10 months of the fiscal year alone—jumping 14% from last year’s figures. The Congressional Budget Office warns these costs could more than double to $2.1 trillion by 2036, making interest payments the federal government’s second-largest expense, ahead of defense and Medicare.
Meanwhile, deficits are growing relentlessly. The US is on track to borrow over $2 trillion this year, despite not being in a recession. The speed of these trends has caught many off guard—the $40 trillion debt milestone was expected in 2028 but arrived two years early.
The Limits of Treasury Buybacks Compared to Fed Actions
One crucial detail here is the difference between the Treasury and the Federal Reserve. The Fed can print money and buy bonds to control yields, but the Treasury must fund bond buybacks by issuing more bills. It’s akin to paying off a long mortgage with credit-card debt—the headline debt appears to drop, but the exposure to fluctuating interest rates grows.
This reshuffling means long-term debt is replaced by short-term obligations, creating sensitivity to interest rate changes. The buybacks only touch a small fraction of a colossal $40 trillion debt pile, which some experts sarcastically compare to rearranging deck chairs on the Titanic. While it edges towards yield curve control—a scenario where authorities actively manage long-term rates—it remains a fragile band-aid unless accompanied by spending discipline.
Japan’s Role in the US Debt Market Is Changing
For decades, Japanese institutions were America’s patient lenders, preferring US bonds due to virtually zero yields at home. That’s unraveling now. The Bank of Japan’s recent rate hike to 1% and rising Japanese yields—10-year yields flirting with 3%, the highest since 1996—have shifted the calculus. Japanese investors can earn more at home than on US debt, prompting a return of capital back to Japan.
This shift poses a problem. Japan remains the largest foreign holder of US government bonds, but its holdings have been declining. Meanwhile, Japanese banks like Mitsubishi UFJ have been snapping up domestic government bonds in the trillions of yen. The flip side is huge unrealized losses for Japanese insurers on prior bond purchases and record withdrawals from policyholders, signalling renewed stress in their financial system.
AI Boom Drives Massive Borrowing—and Risk—from Tech Giants
As governments wrestle with debt, a new wave of borrowing surges from the private sector, propelled by the AI boom. Coreweave’s colossal $30 billion borrowing this year highlights escalating credit risk. Following an $8.5 billion investment-grade debt raise in March, the company’s subsequent financings have carried junk ratings and steeper interest, reflecting increasing lender wariness.
Other tech leviathans borrow aggressively to fund AI infrastructure. Meta and Blue Owl orchestrated a $27 billion private credit deal for the Hyperion campus in Louisiana, stretching debt out to 2049 but keeping it off the main balance sheet. Oracle’s debt rating was recently downgraded near junk status, impacted by customer concentration risks tied to OpenAI. Moody’s warns that such massive AI spending fundamentally strains credit quality across Microsoft, Amazon, Alphabet, Meta, Oracle, and others.
Bitcoin’s Remarkable Independence from Traditional Markets
For much of its institutional life, Bitcoin marched in lockstep with tech stocks like those on the NASDAQ, often amplifying downturns. Earlier this year, its 90-day correlation with NASDAQ hit 0.89, nearly perfect alignment. Yet recently, this correlation has plummeted as Bitcoin surged 25% in a month, reaching $80,000, while NASDAQ barely budged. This decoupling signals Bitcoin’s emergence beyond a mere proxy for tech stocks.
Institutional investors have noticed. The week of August 10th saw $389 million withdrawn from US spot Bitcoin ETFs, only for $1 billion to flood in over three days shortly after. Could this be noise? Possibly. But Bitcoin downsides tended to correlate closely with tech sell-offs historically, making the recent dramatic short squeeze notable as a potential turning point.
This divergence likely reflects market scepticism toward traditional assets amid government debt concerns and the unclear payoff of the AI spending binge. Unlike central banks or governments that adjust policies and intervene at will, Bitcoin operates as a decentralized, immutable system capped at 21 million coins. Its scarcity and independence may become increasingly attractive as traditional finance faces mounting risks.
Watching these forces unfold gives a rare glimpse into what it means for Bitcoin to finally stand on its own. It’s testing the very reason it was created—to be a resilient hedge and alternative amidst financial uncertainty.
