US Treasury Yields Rushing Higher & Pushing the Dollar Up; How Will it Affect Crypto Market?

US Treasury bond yields hit their highest levels in more than a year as traders fled from long-dated government bonds. This surge could further fuel a wave of Treasury selling, which can exacerbate the bond selloff and cause the rates to spike even higher.

The 10-year Treasury yield jumped past 1.3%, marking the biggest daily rise since November. The 2-year note rate went up to 0.12%, and the 20-year bond yield is now past 2%.

Bond prices move in the opposite direction of yields.

This sell-off was propelled by investors expecting higher inflation and economic growth later this year when the economy recovers completely.

The US yields have also been on the rise on expectation of increased issuance of treasuries to finance a massive stimulus package. A $1.9 trillion stimulus bill is expected to pass through the Democratic-controlled Congress later this month.

“I think rates are headed higher, so I think convexity is something to be worried about,” said Priya Misra, head of U.S. rates strategy, at TD Securities in New York.

“When somebody is hedging, it tends to create a big market reaction, and then it’s over for the next two to three weeks. But it can be a pretty vicious move.”

Inflation is an enemy to bonds because it diminishes the value of future payments.

“The past year has been marked by sharp inflation swings that extend beyond the regular volatility in food and energy components.,” JPMorgan analysts noted in a report published Monday.

But the Federal Reserve's commitment to maintaining its current level of bond purchasing at $120 billion per month could keep the yield from increasing in the near-term.

Risky Assets Rejoiced

Stocks are enjoying this jump in yields, with Dow Jones Industrial Average notching a record high. While technology stocks dominated Nasdaq moved lower, little was changed with the S&P 500.

The dollar also rejoiced and hit a five-month high against the yen as US bond yields jumped. The USD index also bounced off of a three-week low. Bets on the dollar in the options market in the short-term, call options have also become more expensive than dollar puts, bets against the currency.

As for Bitcoin, we have broken the $50k level several times this week, and today we went to nearly $52,000 on Coinbase.

As for the rates’ effect on Bitcoin, the digital asset might not be affected by rates, as “crypto is composed of many groups of market participants,” said Qiao Wang of DeFi Alliance, who previously worked with Messari and Tower Research.

According to him, the tactical macro traders aren’t in charge of the market right now; rather, “it’s the long term allocators and the retail trend followers.”

Mike Novogratz, chief executive of Galaxy Digital, is of a similar opinion who says while this is something that needs to be watched closely,

“Crypto is in a secular bull market. The adoption story is overshadowing the macro story. So gold and BTC can go in opposite directions for a while.”

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