The U.S. 10-year Treasury yield exploded to 4.50%, the sharpest jump in weeks. While the majority in the crypto community suspect China is dumping bonds, it could be more structural and liquidity-driven rather than purely geopolitical. This unprecedented surge in yields means rising costs of borrowing and investor jitters about sticky inflation and an influx of government debts into the economy.
But who’s causing the spike?
According to some experts, the main culprits could be large TradFi hedge funds who are basically making bets connected to their version of USDe via synthetic treasury basis trades. Big investment firms often employ risky trading strategies to benefit from holding government debts. This is like TradFi’s version of “USDe-style yield farming,” but with traditional assets.
Such strategies won’t work if the return of the yields doesn’t rise rapidly. When yields jump, the bond prices holding these funds drop. To limit their losses, firms sell their bonds, a process called “deleveraging.” This triggers a cascade of liquidations, driving the yields even higher. Just like we see in a crypto market, where one sell-off leads to more sell-offs.
So does this matter to crypto ?
Not until the Federal Reserve steps in and implements hard measures like quantitative easing (QE) or even yield curve control. This would inject more liquidity back into the system and prevent any more deleveraging.
Higher Treasury Yields: A Double-Edged Sword for Bitcoin
Fresh liquidity effectively means printing more money, a kind of yield curve control implemented by Japan in September 2016 to combat deflation and stimulate economic growth.
Higher yields (when bond prices go down, the yield goes up) could mean weaker dollar, which would be good for BTC. This is quite spooky and could have adverse effects on equity prices, which Bitcoin is very correlated to, which would probably be bad for us
This has historically been bullish for Bitcoin as the token surged by a whopping 120%. However, in the short term, higher yields (treasury) may pressure equity prices (stocks hate tightening), and since Bitcoin remains closely correlated to equities, that could drag crypto down too.