TODAY’S NUMBERS
5.06% (US 10-year Treasury yield, highest since 2007) · 100.9 (Dollar index, seven-week high) · 1,000+ tonnes (China’s gold imports, January–August)
The world is paying up for dollars and stockpiling gold at the same time. Markets are buying the dollar’s yield while hedging its politics.
At 9:45am New York time today, S&P Global’s flash surveys showed US private-sector activity expanding at its fastest pace in five years: services at 58.7 and manufacturing at 57.0, both well above forecasts. The 10-year Treasury yield is now trading at 5.06%, a level not seen since 2007, and the dollar index has climbed to around 100.9. The data lands a week after the Federal Reserve’s first rate hike since 2023, and a day after Bloomberg reported that China imported more than 1,000 tonnes of gold in eight months, more than in all of 2025.
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The mechanism
The Fed under Kevin Warsh raised rates to 3.75–4.00% on September 16 in a 12–0 vote, and its projections point to another hike before year-end. Since then, regional presidents have piled on: St Louis’s Alberto Musalem says more hikes are likely needed; Chicago’s Austan Goolsbee warns they could be front-loaded. Markets now put roughly 60% odds on another quarter-point move at the October 27–28 meeting.
Dollar holders win. A two-year Treasury pays about 4.87%, the gap between dollar and euro short-term rates has widened to roughly 150 basis points, according to ING, and EUR/USD has slipped below its 200-day average. Dollar cash is once again one of the best-paying safe assets in the rich world.
The losers queue up. First, the US Treasury: every basis point on the 10-year feeds a federal interest bill that already exceeds the defence budget, with public debt above 100% of GDP. Second, oil importers: Brent is back above $101, and a firmer dollar makes every barrel dearer in rupees, euros and yen. Third, the dollar-pegged Gulf states, which must import Fed tightening while Saudi Arabia prepares to restart its East-West pipeline to route crude around Hormuz. Fourth, Japan: the Bank of Japan hiked to a 31-year high on September 18 and the yen still fell, because Tokyo cannot close the gap on a Fed that keeps moving.
Gold is the anomaly. Higher yields punish a metal that pays nothing: spot gold is around $4,330, down roughly 4% on the month. Yet Chinese buyers have spent about $159bn on imports this year, nearly double 2025’s outlay, and Goldman Sachs estimates the People’s Bank of China bought 35 tonnes in July against 20 reported. The price is being set in New York by rate expectations. The tonnage is being set in Beijing by something else.
Why it matters
There are two dollars in this story. The cyclical dollar, the currency that rises when the Fed out-hawks everyone else, is winning. The IMF’s latest data show the dollar’s share of global reserves rising to 57.1% in the first quarter, and a Fed staff note this month points out that, excluding legacy gold holders, foreign official Treasury holdings still exceed gold reserves by about $1 trillion.
The political dollar is different: an asset held inside a US-run payments system that can be frozen. For Beijing, gold is the hedge against that second dollar. Much of the buying is household demand, enabled by generous import quotas, but the state appears to be buying the dip alongside its savers.
This shifts leverage quietly. A 5% Treasury is still a powerful magnet, but the exorbitant privilege has become an expensive one. Washington is financing an energy shock, a war in the Gulf and a wide deficit at the highest long-term borrowing costs since before the financial crisis, and every rival reserve manager knows the US needs foreign buyers at least as much as they need Treasuries. Stablecoins were pitched as a new captive buyer of US debt under the GENIUS Act, but supply is up only 6% year on year, to about $303bn.
For Frankfurt and Tokyo, the lesson is uncomfortable: a hawkish Fed exports tightening whether their economies want it. For Beijing, it is an opening to build a reserve position that no US sanctions list can reach, at a discount.
Watch for
Wednesday, September 30, 8:30am EDT: the US August PCE inflation report. Core PCE ran at 3.3% year on year in July. If it fails to cool, an October hike moves from likely to near-certain, the 10-year’s break above 5% starts to look durable, and the squeeze on the yen, the euro and oil importers tightens. A soft print is the likeliest thing on the calendar to blunt the dollar’s rate advantage before the Fed meets on October 27–28.
