On September 17, the United States Federal Reserve (Fed) It is widely expected to reduce interest rates at 25 basic points, which reduces the reference range to 4.00%-4.25%. This movement is likely to be followed by greater flexion in the coming months, reducing rates to about 3% in the next 12 months. The futures market of the FED funds is discarding a drop in the Fed fund rate to less than 3% by the end of 2026.
Bitcoin Bulls are optimistic that early flexibility will push very low treasure yields, which will thus encourage greater risk taking both in the economy and in financial markets. However, dynamics is more complex and could lead to results that differ significantly from what is anticipated.
While expected Fed rate cuts could weigh on the two -year treasure performance, those that are at the long end of the curve can remain high due to tax concerns and sticky inflation.
Debt offer
The United States Government is expected to increase the Treasury Law Projects (short -term instruments) And finally, the longest -lasting treasure notes to finance the recently approved package of extended tax cuts of the Trump administration and a higher defense expense. According to the Congress Budget Office, these policies are likely to add more than $ 2.4 billion to primary deficits for ten years, while increasing debt by almost 3 billion, or approximately $ 5 billion if they become permanent.
The largest debt offer will probably weigh on bond prices and lifting yields. (Bond prices and yields move in the opposite direction).
“The eventual Treasury movement of the United States to issue more notes and bonds will press long -term yields,” said T. Rowe Price analysts, a global investment management firm, in a recent report.
Fiscal concerns have already impregnated longer treasure notes, where investors demand greater returns to give money to the Government for 10 years or more, known as the premium of the term.
The continuous procedure of the performance curve, which is reflected in the extension of the extension between the yields of 10 and 2 years, as well as the yields of 30 and 5 years and mainly driven by the relative resistance of the long -term fees, also indicates increasing concerns about fiscal policy.
Kathy Jones, managing director and main income strategist at the Schwab Financial Research Center, expressed a similar opinion this month, noting that “investors demand greater performance for long -term bond bonds to compensate for the risk of inflation and/or depreciation of the dollar as a consequence of high levels of debt.”
These concerns could prevent the yields of long -term bonds from falling a lot, added Jones.
Stubborn inflation
Since the Fed began to reduce rates last September, the US labor market has shown signs of significant weakening, reinforcing expectations for a faster rate of Fed rates cuts and a decrease in treasure yields. However, inflation has recently overcome, which complicates that perspective.
When the Fed reduced the rates in September last year, the year -on -year inflation rate was 2.4%. Last month, it was 2.9%, the highest from the reading of 3% in January. In other words, inflation has recovered the impulse, weakening the case for faster feeding rate cuts and a fall in treasure yields.
Relieve the price?
The yields have already been pressed, which probably reflects the anticipation of the market of federal reserve rates.
The 10 -year yield fell to 4% last week, reaching the lowest since April 8, according to Data Source TrainingView. The reference yield has decreased by 60 basic points since its maximum of May 4.62%.
According to Padhraic Garvey, CFA, Regional Research Head, America in ING, the 4% drop is probably an excess of disadvantage.
“We can see that 10 -year -old treasure performance is directed even lower, since a 4% attack is successful. But it is likely to be an object in the inconvenience. The highest inflation impressions in the coming months will probably cause long yields, which require significant adjustment,” Garvey said in a note to customers last week.
Perhaps the price of rates cuts have been had, and yields could recover strongly after the September 17 movement, in a repetition of pattern 2024. The dollar index suggests the same, as noted earlier this week.
Lesson of 2024
10 -year yield fell into more than 100 basic points to 3.60% in approximately five months prior to September 2024.
The Central Bank delivered additional rates cuts in November and December. However, the 10 -year yield played with the September movement and increased to 4.57% by the end of the year, and finally reached a maximum of 4.80% in January this year.
According to ING, the increase in yields after the decrease was driven by economic resilience, sticky inflation and tax concerns.
As of today, while the economy has weakened, inflation and tax concerns have worsened as discussed above, which means that pattern 2024 could be repeated.
What does it mean for BTC?
While BTC recovered from $ 70,000 to more than $ 100,000 between October and December 2024 despite the increase in long-term yields, this increase was mainly driven by optimism around the pro-Crypto regulatory policies under President Trump and the growing corporate adoption of BTC and other tokens.
However, these support stories have significantly weakened looking back a year later. Consequently, the possibility of a potential hardening of yields in the coming months that weigh on Bitcoin cannot be discarded.
Read: Here are the 3 things that could spoil the bitcoin rally to $ 120K
