US bonds vs Bitcoin: Markets seem to prefer the latter for investments

By Al Mayadeen English
Source: Bloomberg
31 Jan 2023 22:43

The report said that US bonds are still far from recovering from losses incurred last year.

Illustration of a Bitcoin emblem with a stockmarket charts background (CNBC)

Bitcoin's performance has been in an upward trend in recent months as the US Federal Reserve is expected to pivot on interest rates, and traders' risk-taking approach is back on the market this year.

While the cryptocurrency soared almost 40% this year, Fed bonds have barely recovered from last year's historic losses, a Bloomberg report said on Tuesday, arguing that, despite the fact that the Fed's anticipated halt on hiking interest rates has increased the appetite on bonds again, they are still short from compensating 2022's losses.

Measuring the performance of bonds that are highly sensitive to varying interest rates is done through a variety of ETFs (exchange-traded funds) that contain the government's debts.

US bonds, according to the PGIM Total Return Bond ETF, have only gone up 3.43% in January, which is not even close to last year's performance.

While bonds are not expected to offer high returns, Bitcoin's upward dramatic gains in recent months indicate that the cryptocurrency is performing better than almost all ETFs, said the report.

The Federal Reserve is scheduled to reveal its interest rate decision on Wednesday, which leaves some room for the bond's desirability to increase in accordance with the proposed monetary policy, noted the news site.

The US Central Bank said last year that it "is strongly committed to returning inflation to its 2% objective [target inflation]," as a means to fight the crippling inflation that has soared to a four-decade-high of 9.1% in the mid-last year.

The hikes aimed at taming the spiraling inflation rate have impacted other financial conditions, such as stocks and options.

The CEO of the Federal Reserve Bank of Dallas, Lorie Logan, warned earlier this month that “financial conditions could ease or tighten for reasons unrelated to U.S. economic developments and monetary policy,” arguing that in order "to maintain appropriate conditions to achieve our policy goals, it might be necessary to respond with a different policy path.”

It's noteworthy that the US hit its debt ceiling of $31.4 trillion earlier this month, while the decision on raising it is yet not reached.

Treasury Secretary Janet Yellen warned that, while congress has remained undecided on the debt ceiling, a US default on its debt would set off a worldwide financial crisis.

“On top of that, a failure to make payments that are due, whether it’s the bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis.”

The Treasury announced that it has taken “extraordinary measures” to avoid a government debt default by temporarily suspending payments not immediately needed by federal retirement, disability, and health benefit funds and channeling the money instead to other urgent services needed to keep the government running until June at least.