Thread by @AswathDamodaran

In 2025, there were multiple news stories (tariffs, US government ratings downgrade, US government shutdown and Fed independence) that depleted trust in US institutions, and I look at how that played out in bond, currency, precious metal & crypto markets. bit.ly/4q3y6SC

The bond market, where buyers are trusting governments not to default and to protect buying power (by controlling inflation), took the "loss of trust" new stories in stride, with US treasuries flat (20 & 30 yr) or lower (10 yr & below) for the year. bit.ly/4q3y6SC

One reason for rates not moving may be that the Moody's downgrade was not news to the market, which had already priced in that expectation, given that S&P (2011) and Fitch (2023) had downgraded earlier. The sovereign CDS spread for the US dropped in 2025. bit.ly/4q3y6SC

As for inflation expectations, experts saw a resurgence from tariffs and questions about Fed independence, but markets were sanguine, with expected inflation (Treasury rate - TIPS rate) barely budging. bit.ly/4q3y6SC

The yield curve tilted upwards, as the spreads between the 30-yr and 10-yr treasuries increased from 0.22% to 0.44%, while the spread between the 2-yr and 3-month treasuries decreased. bit.ly/4q3y6SC

As to why challenges to Fed independence did not affect rates more, the answer lies in the fact that much as we buy into the myth of Fed power over interest rates, long term rates are driven mostly be inflation and real growth, not the FOMC. bit.ly/4q3y6SC

Corporate bond markets also had a mostly quiet year, as default spreads stayed flat or trended slightly lower for most ratings classes, with the lowest rated bonds (high yields) being the only exception. bit.ly/4q3y6SC

The trust issue had more bite in the currency markets, where the dollar weakened against both developed and emerging currencies, slightly more with the former than the latter. bit.ly/4q3y6SC

Gold and silver had a blow-out year, as a subset of investors moved out of financial assets to precious metals. bit.ly/4q3y6SC

Gold exploded through historic pricing norms to hit an all-time high, but silver did even better, relatively speaking, and the gold/silver pricing ratio fell back below the long-term median. bit.ly/4q3y6SC

Bitcoin was a puzzle. As a currency built around the belief that you cannot trust anyone (especially central banks), it should have been well positioned to benefit from a trust deficit, but after a mid-year surge, it ended the year down. bit.ly/4q3y6SC

My read is that bitcoin is struggling to find a narrative, as even its advocates split on whether it a currency or a collectible, and its investor base is reflecting those splinters. In 2025, bitcoin moved more with stocks than it did with precious metals. bit.ly/4q3y6SC

The 2025 lesson is that the market is not a monolith, and trust played out differently in different investor segments, and investors self-selected which market to put their money in, based on how the see the trust issue playing out. bit.ly/4q3y6SC