On August 25th, the U.S. stock market exhibited an uncommon combination: U.S. Treasuries, gold, and Bitcoin all rose simultaneously, the U.S. dollar remained strong, crude oil prices retreated, and technology stocks continued to face pressure.
The core variables driving the market came from two policy signals released by U.S. Treasury Secretary Scott Bessent. On one hand, market reports suggested the Treasury Department might utilize cash from the Treasury General Account (TGA) to fund expanded long-term Treasury bond repurchases; on the other hand, the U.S. policy focus on Iran temporarily shifted toward economic sanctions rather than further escalating military action.
Both pieces of news jointly pressured long-end U.S. Treasury yields and oil prices, while also providing support for gold and crypto assets. However, U.S. stocks did not strengthen across the board, with adjustments in the AI and semiconductor sectors continuing to weigh on the Nasdaq index.
TGA Becomes a New Variable in the Treasury Market
Previously, the U.S. Treasury Department had announced an expansion of repurchases for 10- to 30-year Treasury bonds. The market initially interpreted this as a "Operation Twist"-like maturity adjustment: the Treasury would increase the issuance of short-term Treasury bills while repurchasing long-term bonds to alter the debt maturity structure.
The latest development is that the Treasury may not need to rely on new short-term debt financing but could directly use cash held in the TGA at the Federal Reserve.
Morgan Stanley interest rate strategist Martin Tobias estimated that the Treasury might withdraw $80 billion to $200 billion from the TGA to fund expanded bond repurchases. Compared to the currently announced repurchase scale, this potential funding source is significantly larger, leading some traders to view it as a "stronger tool" for the Treasury to stabilize the long-bond market.
As a result, long-end Treasuries outperformed, and the yield curve flattened. Meanwhile, market pricing for 2026 rate hikes actually edged up slightly to about 27.4 basis points, indicating that the day's long-bond rally stemmed primarily from supply-demand and policy expectation changes, not a sudden shift toward broad-based easing trades.
It's important to note that using TGA funds for repurchases remains within the realm of media reports and market speculation at this stage and cannot be considered a confirmed Treasury arrangement. Even if implemented, such operations would primarily serve to improve liquidity and adjust the structure of market-tradable bonds, not equate to Federal Reserve quantitative easing.
Repurchases Can Stabilize Liquidity, But Struggle to Alleviate Long-End Rate Pressure
Wall Street remains clearly divided on whether repurchases can truly lower long-term interest rates.
Institutions like Goldman Sachs and Wells Fargo believe that expanding repurchases does not address the main drivers behind the recent rise in long-end yields. Goldman Sachs strategists George Cole and William Marshall pointed out that even a further expansion of repurchase scale may not be sufficient to significantly reset interest rate levels.
The recent pressure on long-end U.S. Treasuries is still driven by a combination of fiscal deficits, Treasury supply, sticky inflation, and term premium. While the Treasury can improve liquidity for some older bonds through repurchases and marginally optimize supply-demand dynamics, it cannot directly reduce government financing needs.
Strategists from Societe Generale, Deutsche Bank, and Scotiabank anticipate that as long-term yields continue to rise relative to short-term yields, the yield curve may steepen again. This also explains why Goldman Sachs's "stagflation stock basket" has continued to perform strongly recently: the market is simultaneously trading near-term policy support while still pricing in longer-term fiscal and inflation risks.
Therefore, TGA repurchase expectations act more like an added layer of liquidity protection for the long-bond market, rather than a complete reversal of the interest rate trend.
Iran Risk Temporarily Shifts to Economic War, Oil Prices Retreat on Risk Premium
The drop in oil prices stems from another policy clue.
Multiple reports indicate that oil tanker traffic is recovering in the Strait of Hormuz under U.S. protection. Axios, citing U.S. officials, reported that approximately 40 tankers, carrying about 16 million barrels of crude oil, navigated the southern channel and exited the Strait of Hormuz on Friday night. Kpler data showed that an additional 30 vessels passed through the strait over the weekend, with 83 vessels passing through the Bab al-Mandab Strait.
While Iran questioned the reported scale of this traffic, the crude oil market temporarily chose to believe the signals of resumed shipping.
The UK Maritime Trade Operations office subsequently reported an attack on a Saudi tanker in the Red Sea, causing a brief oil price rebound. However, oil prices retreated again after Bessent announced the U.S. would launch an "economic D-Day" against Iran, focusing on targeting third-party institutions purchasing and transporting Iranian oil.
The market interpreted this statement as indicating the U.S. currently prefers using secondary sanctions to squeeze Iran's oil revenue rather than directly expanding military action. Compared to further damaging energy infrastructure or blockading shipping lanes, economic sanctions pose a relatively limited immediate impact on global physical crude supply.
Nonetheless, this optimistic pricing remains fragile. Iran has historically evaded sanctions through shadow fleets and intermediary trading and has threatened retaliation against countries supporting the U.S. plan. If shipping lanes face renewed disruption, crude oil risk premiums could quickly rebound.
Crude Retreats, But Refined Product Inflation Pressure Not Yet Resolved
A drop in crude oil prices does not mean energy inflation risks have disappeared.
Shipping risks in the Strait of Hormuz and the Red Sea continue to affect refined product transport, while Ukrainian drone attacks limit Russian fuel supplies. Simultaneously, global refining capacity has become a new supply bottleneck, keeping prices for refined products like diesel relatively high compared to crude.
TotalEnergies management believes the outlook for crude oil prices is skewed bearish as crude cargoes gradually pass through the Strait of Hormuz; however, due to ongoing tight refined product supply, prices for products like diesel and gasoline may remain strong.
This suggests the transmission channel of energy inflation is changing: market concerns about crude shortages have eased somewhat, but refining and transportation bottlenecks may still affect corporate costs and consumer inflation through refined product prices.
Falling Rates Fail to Rescue Tech Stocks
Compared to the rise in bonds, gold, and Bitcoin, U.S. stock performance showed clear divergence.
Korean tech stocks weakened first, with Samsung's announced shareholder return plan—the largest in its history—still falling short of market expectations, subsequently transmitting pressure to U.S. semiconductor and AI sectors. Most major U.S. stock indices declined, with only the Dow Jones Industrial Average recording gains led by financial stocks; the Nasdaq index led the losses.
On a sector level, consumer staples and financials showed relative resilience, while technology and energy sectors both fell over 1%. Key AI trading sectors like optical communications and semiconductors generally weakened.
Nvidia has fallen for seven consecutive trading days, marking its longest losing streak since September 2022, with its credit default swap spread also rising to a record high. As Nvidia's earnings, the Jackson Hole central bank symposium, and U.S. policy news converge, funds are actively reducing risk exposure.
Notably, while index volatility rose alongside the broader market decline, individual stock volatility somewhat retreated. This divergence indicates investors are more concerned about systemic risks at the macro policy and sector levels rather than company-specific突发事件.
Overall, the market's main narrative for the day was not a simple risk-off or easing trade. Treasury repurchase expectations improved long-bond supply-demand dynamics, the de-escalation of Iran risk lowered oil prices, and gold and Bitcoin benefited from falling real interest rates and policy uncertainty. However, the failure of tech stocks to follow the rebound indicates that the AI trade is transitioning from a liquidity-driven phase into a concentrated verification period for earnings, valuations, and capital expenditure returns.
