Headlines
Trading Day: Another wave of 'buy the dip'
Published by Global Banking and Finance Review
Posted on October 20, 2025
8 min readLast updated: January 21, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on October 20, 2025
8 min readLast updated: January 21, 2026
Global markets rise as 'buy the dip' gains momentum amid easing trade tensions and U.S. earnings optimism, despite concerns over U.S. banking liquidity.
By Jamie McGeever
ORLANDO, Florida (Reuters) -Wall Street and most global equity benchmarks rose sharply on Monday, as optimism around U.S. earnings and easing global trade tensions offset some of last week's worries over frothy asset prices, private credit markets and U.S. regional banks.
More on that below. In my column today, I look at the so-called U.S. 'debasement trade'. While debt and deficit worries are real and justified, the bond and currency markets suggest they are overdone.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Fed still poised to cut rates, but worries mount over USdata vacuum 2. China's economy slows as trade war, weak demandhighlight structural risks 3. Amazon's AWS recovering after major outage disruptsapps, services worldwide 4. Global companies hit by more than $35 billion in UStariffs, but outlook stabilizing 5. New copper demand drivers from US, India as Chinajuggernaut slowsToday's Key Market Moves
* STOCKS: Japan's Nikkei surges 3.3% to new highs, themain U.S. indices end 1-2% higher, Germany +2%, Hong Kong tech+3%. * SHARES/SECTORS: BNP Paribas shares sink as much as 10%,Apple up 4% to a new high and nears $4 trillion market cap,communications services is best sector +1.5%. * FX: Argentina's peso slides again, to new record low1,477/$. U.S. dollar broadly higher but still slips notablyagainst BRL, ZAR and CLP. * BONDS: U.S. Treasury yields edge lower across the curveas government shutdown jitters persist. 10-year yield closesbelow 4.00%, one-month bill yield down 5 bps to 4.03%. * COMMODITIES/METALS: Oil slips 0.5% to its lowest sinceearly May. Brent at $60/bbl, WTI just above $56. Gold bounces 3%back above $4,350/oz. Up 30% in the last two months.Today's Talking Points:
* U.S. banking system liquidity
Debate is intensifying around whether liquidity in the U.S. banking system is shrinking to the point that could soon pose funding, collateral and broader market risks. The Fed could soon end its QT program, bank reserves are below $3 trillion, balances at the Fed's overnight repo facility are almost zero, and usage of the Fed's Standing Repo Facility has ticked up.
Some observers say alarm bells are ringing, and point to the recent wobbles in private credit and regional banks as evidence. Others are less worried, noting that while aggregate liquidity may be tightening, it is still plentiful and the Fed has several tools at its disposal should it need them. In short, there's no cause for concern.
* Reading China's GDP tea leaves
China's headline Q3 GDP figures showed stronger-than-expected quarterly growth of 1.1% and annual growth of 4.8%, which was slower than Q2 but in line with forecasts. On the face of it, China seems to be managing to shrug off the trade tension and tariff uncertainty.
But under the surface, there is perhaps more cause for concern. House prices continue to fall, and more importantly, fixed asset investment fell for the first time ever, excluding the pandemic. An "alarming" development that points to downside risks for Q4 GDP, reckons Zhiwei Zhang at Pinpoint Asset Management.
* The importance of rare earths
Official Chinese data also showed that exports of rare earth magnets fell in September, reigniting fears that the world's top supplier could wield its dominance over a component that is critical for U.S. defense firms and makers of items from cars to smartphones. And increasingly central to U.S.-China trade relations.
U.S. President Donald Trump said he expects to secure a "fair" trade deal with China and plans to meet President Xi Jinping in South Korea next week. Trump and Australian Prime Minister Anthony Albanese signed a rare earths deal on Monday, and Trump said he is working on deals with other countries.
Debasing the 'debasement' trade
The recent surge in gold, cryptocurrencies and stocks to record highs has sparked claims that the U.S. "debasement trade" is in full swing, but the bond and the foreign exchange markets tell a very different story.
The upward swing in some "hard" assets this year is undeniable. The 50% spike in gold and even more eye-watering gains in other precious metals, such as silver and platinum suggest investors are getting anxious about something.
Many have argued that this "something" is debasement - the fear that an oncoming inflationary storm could erode the dollar's purchasing power and the value of U.S. financial assets.
The term "debasement trade" was coined earlier this year by analysts at JPMorgan, though they began flagging the idea last October, arguing that a Republican sweep of the White House and both houses of Congress would be bullish for gold and bitcoin due to expansionary fiscal policy.
Fast forward to today, and debasement doomsayers are pointing to increased U.S. government borrowing and rising public debt projections as well as the resumption of Federal Reserve interest rate cuts at a time when inflation is about to enter its sixth consecutive year above the Fed's 2% target.
But if we were primarily dealing with debasement fears, the dollar and U.S. bonds would be tumbling and Treasury yields would be spiking - and this isn't happening.
WHAT DEBASEMENT?
The numbers speak for themselves. The 10-year nominal Treasury yield last week broke below 4.00%, its lowest since April. In fact, Friday's 3.93% was the lowest in over a year if excluding April 4 and 7, the depths of post-"Liberation Day" tariff turmoil.
The benchmark 10-year yield is down nearly 60 basis points this year. Even the 30-year yield, which is much more sensitive to the de-anchoring of long-term inflation expectations, has fallen around 20 basis points this year, hardly a sign investors are running for the hills.
It's a similar story in "TIPS". The break-even inflation rate on 10-year TIPS, essentially an estimate of where bond investors see inflation a decade from now, last week fell to 2.275%, the lowest since June. More significantly, the 30-year TIPS break-even inflation rate fell to 2.21%, the lowest since May.
True, the dollar had its worst start to a year on record in the first half of 2025, but it has been remarkably stable since April, with the dollar index ending last week almost exactly at its six-month average. Moreover, the dollar has significantly outperformed its G10 currency peers over the past month, as Rabobank's Jane Foley points out.
"Debasement would imply a move away from the dollar and U.S. Treasuries into assets such as gold, and there is very little evidence to back up these flows," Foley says.
To be sure, the dollar is being viewed more skeptically by investors than it was before U.S. President Donald Trump returned to the White House, likely because the world sees the United States as a less reliable economic partner. This is reflected in the fact that as much as 80% of portfolio inflows into the U.S. are now currency hedged, according to UniCredit estimates.
All this suggests that investors still want to hitch their wagon to the U.S. economy and stock market, but not the dollar.
DESPERATELY SEEKING CLARITY
Fears of fiat currency debasement are nothing new, especially those involving the dollar. But they have gained traction since the huge monetary and fiscal responses to the 2007-2009 global financial crisis and the pandemic of 2020-2021. And Trump's unorthodox policy agenda has only added fuel to the fire.
But given how markets are actually behaving, what we may truly be seeing is a mix of central bank diversification, private sector portfolio reallocations, or simply momentum-driven buying.
Ultimately then, we may be reaching peak "debasement trade". Like other popular terms this year, such as the infamous "TACO" (Trump Always Chickens Out) trade – the "debasement trade" is essentially a simple narrative that can help investors make sense of an increasingly logic-defying world.
Even though the $4 trillion global crypto market and $28 trillion gold market may be emitting dollar debasement warnings, the $28 trillion Treasury market and nearly $10 trillion-a-day currency market are not. If you want a simple answer to what's happening in today's financial world, keep looking.
What could move markets tomorrow?
* Bank of Japan Deputy Governor Ryozo Himino speaks * Taiwan trade (September) * European Central Bank board member Phillip Lane speaks * UK public finances (September) * Canada inflation (September) * U.S. earnings include Netflix, Coca-Cola, RTX Corporation,Lockheed Martin, 3MWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever;)
Liquidity refers to how easily assets can be converted into cash without affecting their market price. In banking, it indicates the availability of liquid assets to meet short-term obligations.
Central banks are national financial institutions that manage a state's currency, money supply, and interest rates. They also oversee the banking system and implement monetary policy.
The 'debasement trade' refers to investment strategies that arise from fears of currency devaluation, leading investors to seek hard assets like gold or cryptocurrencies as a hedge against inflation.
Explore more articles in the Headlines category
