ORLANDO, Florida, Oct 20 (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 US

data vacuum

2. China's economy slows as trade war, weak demand

highlight structural risks

3. Amazon's AWS recovering after major outage

disrupts

apps, services worldwide

4. Global companies hit by more than $35 billion in

US

tariffs, but outlook stabilizing

5. New copper demand drivers from US, India as China

juggernaut slows

Today's Key Market Moves

* STOCKS: Japan's Nikkei surges 3.3% to new highs,

the

main 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

low

1,477/$. U.S. dollar broadly higher but still slips notably

against BRL, ZAR and CLP.

* BONDS: U.S. Treasury yields edge lower across the

curve

as government shutdown jitters persist. 10-year yield closes

below 4.00%, one-month bill yield down 5 bps to 4.03%.

* COMMODITIES/METALS: Oil slips 0.5% to its lowest

since

early 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, 3M

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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;)