Key takeaways:
Rising bond yields are causing more panic than a cat in a room full of rocking chairs, leading some investors to question the US Treasury’s once-sacred status as a safe-haven asset.
Bitcoin, that cheeky little rascal, is rising not in spite of the chaos, but perhaps because of it. Who knew? 🤔
Bitcoin (BTC) has decided to take a leap into the stratosphere, all while the global economy is wobbling like a three-legged table. Bond yields are shooting up in the US and Japan, global growth is stalling like a car with no gas, and consumer confidence in the US is scraping the bottom of the barrel.
Ironically, the very conditions that once threatened Bitcoin’s existence are now giving it a boost. It’s as if the universe has decided to play a cosmic joke on investors, who are now rethinking where to hide their treasure. At the heart of this financial circus is the US debt crisis and the ballooning Treasury yields, which were once the gold standard of safety—now they’re more like a rusty old coin.
Why are US Treasury yields so important?
When US bond yields rise, it’s like the national debt is throwing a party, and everyone is invited—except the taxpayers. With US debt now surpassing $36.8 trillion, the interest payments are expected to total a staggering $952 billion in 2025. That’s a lot of zeros! 💸
US President Donald Trump has made it clear that lowering yields is a top priority, but it’s proving to be as easy as herding cats. The two main methods to achieve this require the US Federal Reserve to step in. Lowering interest rates would make new bonds less appealing, while quantitative easing (QE) is like trying to fill a bathtub with the drain open.
The Federal Reserve is currently playing hard to get, resisting both strategies and trying not to set inflation on fire, especially with the ongoing tariff war. Even if Trump finds a way to nudge Fed Chair Jerome Powell, it could backfire spectacularly, like a poorly planned fireworks display.
Investors are not fond of political meddling with the economy’s foundations, and their confidence is already as fragile as a soap bubble. Traditionally, in times of instability, investors flock to government bonds like moths to a flame. But today, they’re turning away from Treasurys, suggesting the problems in the US economy are too big to ignore. The recent loss of the US government’s last AAA credit rating is like a neon sign flashing “Danger!”
The worrying yield surge in the US and Japan
On May 22, the yield on the US 30-year bond hit 5.15%—its highest since October 2023, and before that, a level not seen since July 2007. The 10-year yield now stands at 4.48%, the 5-year yield at 4%, and the 2-year yield at 3.92%. Talk about a rollercoaster ride! 🎢
For the first time since October 2021, the US 5-Year to 30-Year bond spread has steepened to 1.00%. This suggests markets are pricing in stronger growth, persistent inflation, and a “higher for longer” rate environment. Buckle up, folks!
Meanwhile, Japan, the largest foreign holder of US Treasurys, is in a bit of a pickle. Japanese investors currently hold $1.13 trillion in US government debt—$350 billion more than China. For decades, they’ve borrowed cheaply at home to invest in US bonds and stocks—a strategy known as the carry trade. But that may be coming to an end.
In March 2024, the Bank of Japan started raising interest rates from -0.1% to 0.5%. Since April, the Japanese 30-year bond yield has surged by 100 basis points, reaching an all-time high of 3.1%. The 20-year bond yields rose to 2.53%, a level not seen since 1999. It’s like watching a slow-motion train wreck.
On May 19, Prime Minister Shigeru Ishiba even warned that his debt-strapped government’s position was “worse than Greece”—a startling admission for a country with a 260% debt-to-GDP ratio. Ouch! 😬
Interestingly, the surge in long-dated Japanese bonds wasn’t matched by shorter maturities. The 10-year bond yield is 1.53%, and the 5-year bond yield is just 1%. This suggests a strategic shift by large Japanese pension and insurance funds as the Bank of Japan “normalizes” interest rates. If they start unwinding their holdings, it could spell trouble for US Treasurys. Yikes!
Will bond volatility continue to impact Bitcoin price?
As the US continues its descent into the debt spiral, and Japan might be starting its own, the global economy is nowhere near recovery. But hey, that could be a good sign for Bitcoin!
Traditionally, rising bond yields would drag down risk assets. Yet stocks and Bitcoin are climbing like they’re on a sugar high. This divergence suggests investors may be tossing the traditional playbook out the window. When confidence in the system erodes, assets outside it, like stocks and Bitcoin, begin to shine, even if they’re considered risky. Who would have thought?
What’s more, between Bitcoin and US stocks, an increasing number of institutions are choosing Bitcoin. As The Kobeissi Letter noted, net 38% of institutional investors were underweight US equities in early May, the lowest since May 2023. It seems Bitcoin is the new kid on the block! 🎉
it is acting as a high-yield risk asset and a safe haven store of value. In a world where old frameworks are failing, Bitcoin’s dual role may no longer be an anomaly, but a sign of what’s to come. And who knows? Maybe it’s just the beginning of a very strange adventure!
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2025-05-25 23:11