Liquidity Improves as Bonds, Gold, and Bitcoin Rise Together—Why Are Tech Stocks Still Falling?

On Aug. 25, the U.S. stock market saw an unusual combination: Treasury bonds, gold, and Bitcoin all rose, the dollar stayed strong, crude oil prices fell, and tech stocks remained under pressure.

The key market drivers came from two policy signals released by U.S. Treasury Secretary Scott Bessent. On one hand, there were reports that the Treasury might use cash from the Treasury General Account (TGA) to fund expanded long-term Treasury buybacks. On the other hand, the U.S. policy focus on Iran temporarily shifted toward economic sanctions rather than further military escalation.

Both pieces of news pushed long-term Treasury yields and oil prices lower, while supporting gold and crypto assets. However, U.S. stocks did not strengthen across the board, as the correction in AI and semiconductor sectors continued to weigh on the Nasdaq.

TGA Becomes a New Variable in the Treasury Market

Previously, the U.S. Treasury had announced an expansion of buybacks for 10- to 30-year Treasuries, which the market initially interpreted as a maturity adjustment similar to "Operation Twist": the Treasury would increase issuance of short-term bills while buying back long-term bonds to alter the debt maturity structure.

The latest change is that the Treasury may not need to rely on new short-term debt financing, but could directly use TGA cash held at the Federal Reserve.

Morgan Stanley rates strategist Martin Tobias estimates that the Treasury could withdraw $80 billion to $200 billion from the TGA to expand bond buybacks. Compared with the currently announced buyback size, this potential funding source is significantly larger, so some traders view it as a "stronger tool" for the Treasury to stabilize the long-term bond market.

As a result, long-term Treasuries outperformed and the yield curve flattened. Meanwhile, market pricing for a rate hike in 2026 actually edged up to about 27.4 basis points, indicating that the day's long-bond rally was mainly driven by changes in supply-demand and policy expectations, not a sudden shift to broad easing trades.

It should be noted that using the TGA to fund buybacks is still based on media reports and market speculation, and cannot yet be considered a confirmed Treasury arrangement. Even if implemented, the direct effect of such operations would mainly be to improve liquidity and adjust the structure of tradable bonds, not equivalent to Federal Reserve quantitative easing.

Buybacks Can Stabilize Liquidity but Hardly Resolve Long-End Rate Pressure

Wall Street remains clearly divided on whether buybacks can truly push long-term interest rates lower.

Goldman Sachs, Wells Fargo, and others believe that expanding buybacks does not address the main reasons for the recent rise in long-term yields. Goldman strategists George Cole and William Marshall point out that even if buyback size is further expanded, it may not be enough to significantly reset rate levels.

The recent pressure on long-term Treasuries still stems from the combined effects of fiscal deficits, Treasury supply, sticky inflation, and term premiums. The Treasury can improve liquidity for some older bonds through buybacks and marginally optimize supply and demand, but it cannot directly reduce government financing needs.

Strategists at Société Générale, Deutsche Bank, and Scotiabank expect the yield curve could steepen again as long-term yields continue to rise relative to short-term yields. This also explains why Goldman's "stagflation stock basket" has recently kept strengthening: the market is simultaneously trading short-term policy support while still pricing longer-term fiscal and inflation risks.

Therefore, TGA buyback expectations are more like adding a layer of liquidity protection to the long-term bond market, rather than completely reversing the rate trend.

Iran Risk Temporarily Shifts to Economic Warfare, Oil Prices Give Back Risk Premium

The drop in oil prices came from another policy thread.

Multiple reports show that tanker traffic through the Strait of Hormuz is recovering under U.S. protection. Axios, citing U.S. officials, reported that about 40 tankers carrying roughly 16 million barrels of crude passed through the southern channel out of the Strait of Hormuz on Friday night. Kpler data showed that over the weekend, another 30 vessels passed through the strait and 83 vessels passed through the Bab el-Mandeb Strait.

Although Iran has questioned the scale of the traffic, the crude market has temporarily chosen to believe the signals of shipping recovery.

The UK Maritime Trade Operations office later reported that a Saudi tanker was attacked in the Red Sea, causing oil prices to briefly rebound. However, after Bessent announced an "economic D-Day" against Iran, focusing on third-party institutions that buy and transport Iranian oil, oil prices fell again.

The market interpreted this as the U.S. preferring to use secondary sanctions to squeeze Iran's oil revenues rather than directly expanding military action. Compared with further damaging energy infrastructure or blockading shipping lanes, economic sanctions have a relatively limited immediate impact on global crude physical supply.

However, this optimistic pricing remains fragile. Iran has previously evaded sanctions through shadow fleets and intermediary trade, and has already threatened retaliation against countries supporting the U.S. plan. If shipping is disrupted again, the crude risk premium could quickly return.

Crude Falls, but Refined Product Inflation Pressure Remains

The decline in crude prices does not mean energy inflation risks have disappeared.

Shipping risks in the Strait of Hormuz and the Red Sea are still affecting refined product transportation, while Ukrainian drone attacks have limited Russian fuel supply. At the same time, global refining capacity has become a new supply bottleneck, and prices for refined products such as diesel remain high relative to crude.

TotalEnergies management believes that as crude cargoes gradually pass through the Strait of Hormuz, the crude price outlook is turning bearish; but because refined product supply remains tight, prices for diesel, gasoline, and other products may stay strong.

This means the transmission of energy inflation is changing: concerns about crude shortages have eased, but refining and shipping bottlenecks may still affect corporate costs and consumer inflation through refined product prices.

Falling Rates Fail to Rescue Tech Stocks

Compared with the rise in bonds, gold, and Bitcoin, U.S. stocks showed clear divergence.

Korean tech stocks weakened first, as Samsung's largest-ever shareholder return plan still fell short of market expectations, and the pressure then spread to U.S. semiconductor and AI sectors. Most major U.S. stock indexes fell, with only the Dow Jones Industrial Average rising, led by financial stocks; the Nasdaq posted the largest decline.

By sector, consumer staples and financials were relatively resilient, while technology and energy both fell more than 1%. Major AI trading sectors such as optical communications and semiconductors broadly weakened.

Nvidia has fallen for seven consecutive trading days, its longest losing streak since September 2022, and its credit default swap spread has also risen to a record high. With Nvidia's earnings, the Jackson Hole central bank symposium, and U.S. policy news all coming together, investors are actively reducing risk exposure.

Notably, index volatility rose as the broader market fell, while single-stock volatility declined. This divergence suggests investors are more concerned about systemic risks at the macro policy and sector level, rather than a sudden event at any single company.

Overall, the day's market theme was not simply risk aversion or easing trades. Treasury buyback expectations improved long-term bond supply and demand, Iran risk de-escalation pushed oil prices lower, and gold and Bitcoin benefited from falling real yields and policy uncertainty. But tech stocks did not follow the rebound, indicating that the AI trade is moving from a liquidity-driven phase into a period of concentrated verification of earnings, valuations, and capital expenditure returns.