Do U.S. Treasury Bonds Disagree?

Gold and U.S. Treasuries are telling two starkly contrasting grand narratives. The logic behind gold reflects a ‘vote of no confidence’ in the future credibility of currencies: it bets that the United States’ massive debt can ultimately only be diluted through inflation (i.e., ‘devaluation trade’). In contrast, the logic of U.S. Treasuries represents a ‘vote of confidence’ in policy credibility: their stable long-term inflation expectations indicate that the market believes the Federal Reserve will successfully defend its inflation target, or that an economic slowdown will naturally suppress prices.