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To investors,

US bonds have historically been seen as a safe haven asset, but in a time when investors were seeking safety, bonds have failed them.

The iShares 20 Plus Year Treasury Bond ETF ($TLT) is down 22% over the last 5 years and down almost 50% since the high of 2020.

This is a disaster, but why is it happening? Simple — there is an imbalance in supply and demand.

Liz Hoffman writes for Semafor:

“Nobody wants U.S. Treasury bonds.

Once a symbol of America’s economic might and accepted as a global coin of the realm, they have fallen badly out of favor, with serious consequences for taxpayers, investors, and financial markets.

Elementary economic forces — too much supply and not enough demand — have collided to create the worst stretch for U.S. government bonds since the Civil War. The government keeps borrowing to cover its budget deficits, while once-reliable buyers of that debt, both at home and abroad, have pulled back.

The result: Investors are demanding the steepest yields since 2007. Auctions of fresh bonds that were once routine are now going terribly. And bond portfolios are getting absolutely hammered. The longest-dated Treasury bonds are in a bear market worse than the dot-com bust and almost as bad as 2008.”

That sounds bad, right? It looks even worse when you visually show it on a chart:

Hoffman goes on to share an even more damning data point:

“Already running huge deficits, the only way for Treasury to pay the interest — along with ambitious spending programs like the CHIPS Act and student-loan forgiveness — is to keep borrowing.

But from whom?

China and Japan, once reliable buyers of Treasury bonds, have been selling them to prop up their weakening currencies. A decade ago they held more than 22% of U.S. government bonds; today it’s 7%.”

Think about that for a second. China and Japan have decreased their share of US Treasuries by approximately 68% over the last 10 years. Not a great situation.

Thankfully, at the same time that nation states have been decreasing purchases in US Treasuries, another buyer has shown up in the market. It isn’t the buyer you would expect though.

Stablecoin issuers are buying US treasuries by the handful. They have collectively become the 16th largest holder of treasuries, and as CoinFund’s Chris Perkins pointed out, hold more than Norway, South Korea, Saudi Arabia, Germany, The Netherlands, Mexico and the UAE.

The dichotomy is noteworthy. Nation states with fiat currencies have decreasing interest, while digital fiat currencies are increasing. This is a true digital disruption, although it is widely misunderstood by most market participants.

Japan and China are not going to stop holding treasuries though. The two countries remain the largest holders globally by a far margin. Investors should pay attention to the trend, rather than the static state of the current situation. As Wayne Gretzky said, skate to where the puck is going.

And that puck seems to indicate the future will be dominated by fiat stablecoin issuers holding a significant amount of US treasuries. In fact, there is a serious chance that over the next 10-15 years, stablecoin issuers could become the single largest holder of treasuries in the world.

While that may seem far-fetched today, it would have been impossible to predict the rapid rise of these assets just 5 years ago. Disruption happens fast. Bill Gates said it best — we overestimate what we can accomplish in one year but underestimate what we can accomplish in 10 years.

Let’s see what happens. Hope you all have a great end to your week. I’ll talk to everyone tomorrow.

-Anthony Pompliano

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Bradley Tusk is a venture capitalist, political strategist, writer, and owner of P&T Knitwear bookstore. 

In this conversation, we talk about his brand new book, called “Obvious in Hindsight.” It is all about a fictional story of innovative technology, flying cars, and what they have to go through with politicians, mafia members, etc. This is a great conversation about how technology meets politics, and the reality on the ground.

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