Key Insights:
- Persistently high Treasury yields signify fiscal expansion under Trump, which is expected to support Bitcoin and similar assets.
- Analysts anticipate that fiscal policies could pressure the Treasury market, potentially leading to a 6% 10-year yield in the next 12-18 months.
- Consistently elevated yields may also indicate rising sovereign risk, enhancing Bitcoin’s attractiveness as an alternative investment.
Rising U.S. Treasury yields, particularly for government bonds, have long been perceived as an obstacle to Bitcoin (BTC) and other high-risk assets. However, a recent trend suggests reversals that could favor Bitcoin, per analysts.
On Tuesday, U.S. data indicated the Consumer Price Index (CPI) increased by 0.2% month-on-month for both headline and core measures in April, falling short of the expected 0.3% increment. This resulted in a year-on-year inflation rate of 2.3%, the softest since February 2021.
Despite this, yield prices for the decade-long Treasury notes dropped, driving the yield to 4.5%, the highest since early April, according to TradingView data.
Fiscal Expansion
Current yield increases are tied to expectations of ongoing fiscal growth during Donald Trump’s administration, according to Spencer Hakimian, founder of Tolou Capital Management. He remarked, “Bonds decline on a weak CPI day is indicative of aggressive fiscal expansion, ignoring debt and deficits. This scenario benefits Bitcoin, Gold, and Stocks, while harming Bonds.”
Furthermore, the details of a tax reduction initiative proposed by Trump entail $4 trillion in tax cuts and $1.5 trillion in reductions in spending, summing up to a fiscal expansion of $2.5 trillion.
Sovereign Risk
Per EndGame Macro, the sustained high Treasury yields reflect fiscal dominance, revealing a need for more debt issuance. “When bond markets demand higher yields despite lower inflation, it’s less about inflation cycles and more about the sustainability of U.S. debt issuance itself,” the anonymous observer noted.
With these changes in yield dynamics, Bitcoin, often regarded as an alternative investment, might become more appealing. As yields go up, the Fed could respond with judicious yield curve control to keep yields from soaring past thresholds.
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