Markets Wrap: Higher Yields, Higher Gold

Global bond yields are reaching multi-decade highs, driven by persistent inflation, massive government debt, and increased supply. US Treasury efforts to cap long-term yields through bond buybacks signal a shift toward fiscal dominance, potentially leading to a weaker dollar and increased imported inflation. Meanwhile, the AI infrastructure boom faces scrutiny as research suggests small language models (SLMs) can match the reasoning efficacy of large language models (LLMs) at significantly lower energy and compute costs. This potential disruption to the hyperscaler business model, combined with concerns over unsustainable debt-to-GDP ratios, is fueling a "debasement trade," evidenced by rising interest in gold and Bitcoin. Investors should remain cautious regarding the liquidity of private assets within pension portfolios, as these holdings may face significant challenges during market volatility or inheritance tax events.