On August 25, the U.S. stock market witnessed an unusual combination: U.S. Treasuries, Gold, and Bitcoin all rose simultaneously, the U.S. dollar remained strong, oil prices fell, and tech stocks continued to be under pressure.

The core drivers of the market came from two policy signals released by U.S. Treasury Secretary Scott Besent. On the one hand, there were reports that the Treasury might tap into the Treasury General Account (TGA) cash to provide funding for expanding long-term Treasury repurchases; on the other hand, the U.S.'s focus on Iran temporarily shifted towards economic sanctions rather than escalating military action.

These two pieces of news jointly pushed down long-term U.S. Treasury yields and oil prices while providing support for Gold and crypto assets. However, U.S. stocks did not universally strengthen as a result, with adjustments in the AI and semiconductor sectors dragging down the Nasdaq Index.

TGA Becomes a New Variable in the U.S. Treasury Market

Previously, the U.S. Treasury had announced an expansion of 10 to 30-year Treasury repurchases, which the market initially interpreted as a term adjustment similar to a "twist operation": the Treasury increased short-term Treasury issuance while repurchasing long-term bonds to change the debt maturity structure.

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

Morgan Stanley rate strategist Martin Tobias estimates that the Treasury could extract $80 to $200 billion from the TGA to expand bond repurchases. Compared to the currently announced repurchase size, this potential source of funding is significantly larger, hence being seen by some traders as a "stronger tool" for the Treasury to stabilize the long bond market.

As a result, the long-term U.S. Treasury outperformed, and the yield curve tended to flatten. Meanwhile, market pricing for a 2026 rate hike slightly increased to around 27.4 basis points, indicating that the day's rise in long bond yields was mainly due to supply-demand and policy expectation changes and not a sudden market shift to broad easing trades.

It is important to note that the use of the TGA for repurchases is currently based on media reports and market speculation, and cannot yet be considered a confirmed Treasury Department arrangement. Even if implemented in the end, the direct effect of such operations is mainly to improve liquidity, adjust the tradable bond market structure, and is not equivalent to Fed quantitative easing.

Repurchases Can Stabilize Liquidity, But May Not Alleviate Long-End Rate Pressure

Wall Street is still divided on whether repurchases can truly lower long-term rates.

Institutions like Goldman Sachs and Wells Fargo believe that expanding repurchases has not addressed the main reasons for the recent rise in long-end yields. Goldman Sachs strategists George Cole and William Marshall point out that even if the repurchase scale is further expanded, it may not be sufficient to significantly reset rate levels.

Recent pressure on long-term U.S. treasuries is still the result of the combined effects of fiscal deficits, government bond supply, inflation stickiness, and term premium. The Treasury Department can improve the liquidity of some older securities through repurchases and can optimize supply and demand on the margin, but it cannot directly reduce government financing needs.

Strategists from Societe Generale, Deutsche Bank, and CIBC expect that as long-term yields continue to rise relative to short-term yields, the yield curve may steepen again. This also explains why Goldman's "stagflation stock portfolio" has continued to strengthen recently: the market is trading short-term policy support on one side and still pricing longer-term fiscal and inflation risks.

Therefore, the expected TGA repurchases seem more like adding an additional layer of liquidity protection to the long bond market, rather than completely reversing the rate trend.

Iran Risk Temporarily Shifts to Economic Warfare, Oil Price Reconsiders Risk Premium

The drop in oil prices comes from another policy clue.

Multiple reports indicate that under U.S. protection, oil tanker traffic in the Strait of Hormuz is recovering. Axios cites U.S. officials saying that about 40 tankers carrying about 16 million barrels of crude oil passed through the southbound channel of the Strait of Hormuz on Friday night. Kpler data shows that another 30 vessels passed through the strait over the weekend, with 83 vessels passing through the Mandeb Strait.

Although Iran questions the scale of the passage mentioned above, the crude oil market is currently choosing to believe the signal of shipping recovery.

The UK Maritime Trade Operations subsequently reported that a Saudi oil tanker was attacked in the Red Sea, causing oil prices to briefly rebound. However, Bertrand announced the launch of an "economic D-Day" against Iran, focusing on targeting third-party entities that purchase and transport Iranian oil, causing oil prices to fall again.

The market interpreted this statement as a sign that the United States is currently more inclined to use secondary sanctions to shrink Iran's oil revenue rather than escalate direct military action. Compared to further disrupting energy infrastructure or blocking waterways, economic sanctions have a relatively limited immediate impact on global physical oil supply.

However, this optimistic pricing is still fragile. Iran has previously evaded sanctions through shadow networks and intermediary trade and has also threatened retaliation against countries supporting U.S. plans. If shipping is once again disrupted, the crude oil risk premium could quickly rebound.

Crude Oil Retreats, Finished Product Inflation Pressure Persists

The decline in crude oil prices does not mean that energy inflation risks have vanished.

The shipping risks in the Hormuz Strait and the Red Sea continue to affect finished product transportation, while drone attacks in Ukraine have limited Russia's fuel supply. Meanwhile, global refining capacity has become a new supply bottleneck, and prices of refined products such as diesel remain elevated compared to crude oil.

The management of TotalEnergies believes that as crude oil cargoes gradually pass through the Hormuz Strait, the outlook for crude oil prices tends to be bearish. However, due to ongoing tightness in finished product supply, prices of diesel, gasoline, and other products may continue to remain strong.

This implies that the transmission channels of energy inflation are changing: the market's concerns about crude oil shortages have somewhat eased, but refining and transportation bottlenecks may still impact corporate costs and consumer inflation through finished product prices.

Rate Decline Fails to Save Tech Stocks

Compared to the rises in bonds, gold, and Bitcoin, U.S. stocks showed a significant divergence.

South Korean tech stocks were the first to weaken, with Samsung's announcement of the largest-ever shareholder return plan falling below market expectations, leading to pressure on U.S. semiconductor and AI sectors. Most U.S. major indices declined, with only the Dow Jones Index recording an increase driven by financial stocks; the Nasdaq Index led the losses.

In terms of sectors, consumer staples and financials showed relative resilience, while the technology and energy sectors both fell by over 1%. Major AI trading sectors such as optical communications and semiconductors generally weakened.

NVIDIA has seen a seven-day consecutive decline, marking its longest losing streak since September 2022, with its credit default swap spread also rising to historic highs. As NVIDIA's earnings report, the Jackson Hole Fed meeting, and U.S. policy news converge, funds are actively reducing risk exposure.

It is worth noting that while index volatility rose with the market decline, individual stock volatility has somewhat subsided. This divergence indicates that investors are more concerned about macro policies and systemic risks at the sector level rather than a specific company's idiosyncratic event.

Overall, the main theme of the market on that day was not simply risk-off or risk-on trading. The Treasury buyback expectations improved the long-end bond supply and demand dynamics, Iran risk de-escalation weighed on oil prices, while gold and Bitcoin benefited from the decline in real interest rates and policy uncertainty. However, tech stocks did not follow the rebound, indicating that AI trading is transitioning from a liquidity-driven phase to a concentrated validation period focusing on earnings, valuations, and return on investment.

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