TIPS data points to rising real yields, not inflation, a dynamic that weighs on non-yielding assets like Bitcoin.
After yields reached local lows in early March, US government debt has been undergoing a multi-month sell-off. This week, after the most recent meeting of the Federal Open Market Committee (FOMC), 30-year Treasury yields made headlines by reaching the highest level since 2007.
In line with the two-year yield rising 76 basis points (bps) in this window, a September rate hike by the Federal Reserve is priced into the markets at 63%, according to CME FedWatch.
2Y, 10Y and 30Y US Treasury Yields. Data Source: Treasury.gov
With rates at these elevated levels, government bond investments are, for the first time since 2019, more profitable than cash-and-carry trades in the crypto markets, as per Glassnode’s latest research.
2Y US Treasury yield and crypto futures carry trade. Source: Glassnode
The reason for the bond sell-off is commonly taken to be the inflationary pressures from higher commodity and energy prices. The multi-month bond sell-off coincides with the start of the Iran war and resulting closure of the Strait of Hormuz. Furthermore, the daily closes of the two-year US government bond yield, West Texas Intermediate (WTI) and Brent Crude have correlated since March at a coefficient of r=0.44:
Daily closes of WTI and Brent Crude against 2Y Yield. Data Sources: fred.stlouisfed.org, EIA
WTI briefly rose once again above $85 a barrel on Thursday after President Donald Trump threatened Iran and bonds sold off leading into the FOMC. Nothing about the conflict suggests a near-term resolution, which has led some to argue that higher rates are being caused by inflation expectations.
WTI (West Texas Intermediate) oil price chart. Source: Tradingeconomics.com
This has driven loud inflation scares through the mainstream financial press, with recent Bloomberg headlines, such as “Global Bonds Are Reeling as Oil Surge Rekindles Inflation Threat”, “US Yields Hit Two-Month High as Oil Sparks Inflation Risk” or “Global Bond Selloff Worsens as Rising Oil Prices Spook Investors”. Among the ever-inflation-aware crypto and precious metals audience, this narrative is popular, too:
Market commentator and Bitcoin influencer The Wolf of All Streets recently posted on X:
Source
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