US Debt Rattles Markets as Moderna Triggers Short Squeeze

Who Sets the Price of Money?

The broader monetary picture, however, is more complicated. The new Fed chair recently boasted that rising yields on long-term bonds do not trouble him because the invisible hand of the market will solve the problem on its own.

Long-term yields can rise without the Fed increasing its policy rate, while short-term borrowing costs remain comparatively low. But the Treasury’s intervention changes that equation: it now intends to buy longer-dated bonds.

Could that create tension between the two institutions? Even if it does not, the episode raises a fundamental question about monetary policy: who ultimately sets the price of money?

Until now, that role has primarily belonged to the US central bank. But everyone knows that the Trump administration wants rates as low as possible – in other words, money as cheap as possible. The Treasury has now shown that it, too, is prepared to intervene to bring down borrowing costs.

In such an environment, the strength of Bitcoin and gold is hardly surprising. That is despite another interest rate hike at the next meeting still appearing highly likely. If it does not materialize, more investors may begin to question the US central bank’s independence.

Even before taking office, Kevin Warsh emphasized the importance of the Fed’s independence. The coming months will give him an opportunity to put those views into practice.

Another sign of unease surrounding US assets comes from reports that China purchased an estimated 40 metric tons of gold on the London market in June 2026. That is 167% more than the 15 metric tons officially reported by the Chinese central bank for the month.

China has long been one of the world’s largest buyers of gold, although the true scale of its purchases is difficult to gauge. For the Chinese central bank, this is not primarily a bet on further gains in the gold price, but part of a broader effort to reduce its dependence on the US dollar and, in particular, US Treasury bonds.

For Washington, the challenge is therefore not merely to offer creditors attractive yields in light of inflation expectations. It must also find enough buyers willing to absorb an ever-growing supply of Treasury debt.

The Bond Market Is Not Convinced by Bessent

Despite an intervention by US Treasury Secretary Scott Bessent, US bond yields soon began to rise again. The initial effect lasted barely a few days. That does not mean the expanded buybacks will fail, but the market has so far suggested that their impact may prove short-lived.

Bessent sees things differently. He dismissed the intraday movements as “noise” and pointed to thin market liquidity. He also expressed confidence that yields would fall again.

The coming weeks should show who is right: Bessent or the bond market.

Donald Trump took a more radical line. Faced with persistently high US borrowing costs, he found someone else to blame.

Trump pointed to Switzerland, arguing that the country enjoys far lower interest rates than the US.

The comparison is difficult to sustain. The Swiss policy rate is 0%, largely because the country’s fiscal position and inflation are far healthier than those of the US.

Its budget is essentially balanced and public debt stands at 39.4% of GDP. Inflation is around 0.4%, leaving little reason to raise interest rates. Rather than take inspiration from Switzerland, however, Trump chose a different approach. He declared that the United States could simply cut off trade with the country. According to him, this “elite country” would quickly realize just how dependent it is on America.

Moderna Triggers Another Short Squeeze

The turmoil surrounding US debt coincided with another dramatic market move. Bitcoin surged unexpectedly, triggering a short squeeze. But it was not the only one. An even more spectacular squeeze unfolded in Moderna shares.

The stock has fallen sharply from its pandemic-era highs. Anyone buying Moderna today is primarily betting on the potential of mRNA technology. Since the pandemic boom faded, the company has faced one overriding challenge: proving that the platform can produce another major success beyond its COVID-19 vaccine. Neither its hantavirus work nor its potential Ebola vaccine had fundamentally changed that investment case.

That changed this week. Moderna announced positive Phase 3 results for its personalized mRNA cancer therapy. It marked a historic breakthrough: no personalized mRNA cancer therapy had previously produced a positive Phase 3 readout.

The technology is particularly striking because each treatment is tailored to the individual patient, using the genetic profile of the tumor to target specific mutations. The news sent Moderna shares soaring by 177%.

For existing shareholders, it was an extraordinary day. Short sellers had a rather different experience.

Before the results were released, approximately 13.5% of Moderna’s freely tradable shares had been sold short. For a company of this size, that is an exceptionally high figure. Bearish speculators suffered paper losses of approximately $5.5bn in a single day.

There were reasons for the bearish positioning, not least the stance of US Health and Human Services Secretary Robert F. Kennedy Jr. His department has significantly curtailed federal support for the development of mRNA vaccines against respiratory infections, giving investors another reason to approach the technology with caution.

Closing a short position requires buying back the shares that were originally borrowed and sold. A squeeze of this magnitude therefore created an urgent need for cash among funds caught on the wrong side of the trade.

Their most profitable holdings offered an obvious source of liquidity, particularly AI-related stocks such as Nvidia. The scramble to cover Moderna shorts therefore coincided with selling in some of the market’s biggest recent winners.

The episode showed how a spectacular rally in a biotech stock could reverberate through some of the world’s most valuable companies – and how little room modern financial markets leave investors to switch off over the summer.

Anyone who went on vacation last week with short positions in both Bitcoin and Moderna may have discovered that the four-star hotel was not the most expensive part of the trip.