Bitcoin and the US Bond Market

Everything Sold Off

Over the past two months, financial markets were faced with a simultaneous, yet unusual selloff in assets often regarded as safe havens such as US treasuries and the US dollar, as well as in risk-on assets, such as US equities and Bitcoin. A big part of those moves followed President Trump’s so-called “Liberation Day” tariffs, the most protectionist trade policy announcement in the US in over a century. 

The US bond market, in particular, has been upended by Trump’s tariff blusters. Intraday, the 10-year treasury yield dropped to as low as 3.8%, while finding a ceiling as high as 4.6%. President Trump even later claimed “the bond market is very tricky” after he paused the “Liberation Day” tariffs for 90 days on April 9. 

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During this time period, BTC’s correlation with the US 10-year treasury yield has reached its highest levels since 2015, fallen and increased once more. In this report, we aim to provide insight into the erratic behaviour of the US bond market, and what those moves might mean for BTC. All else held equal, a higher 10-year US treasury yield can often reduce the attractiveness of riskier assets such as US equities and BTC. 

Explaining the moves in US Treasuries

The rise of the 10Y Treasury

The 10-year US treasury yield has recently undergone a rollercoaster ride. That whipsaw in yields initially began with a near 50bps increase to 4.5% as a ‘Sell America’ narrative gripped financial markets”. Yields eventually then reversed course at President Trump’s Liberation Day tariff U-turn on April 9 – the reverse would prove to be temporary only, and the 10Y treasury yield has since started to move up once more to 4.5%. 

According to the Federal Reserve’s May meeting minutes, the unwind of positions on “spreads between Treasury yields and interest rate swaps”, a trade primarily taken by hedge funds, “appeared to have been a factor in the deterioration of liquidity and the associated rise in longer-term yields.”

The chart below shows how a widening in the spread of the swap trade towards -50bps coincided with a rise in yields in late March and early April when President Trump formally announced his Liberation Day reciprocal tariffs – evidence in favour of the Fed’s view.

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The Fed meeting minutes also said that the “increase in longer-term yields appeared to be partly attributable to higher term premiums”. The term premium is the extra return that investors require for holding long-term bonds instead of rolling over shorter maturity debt. According to the San Francisco Fed’s model of 10-year treasury yield term premia, it has risen to its highest level since 2014.

While not an exhaustive list, the events listed below may have contributed to the more recent leg up in the 10-year treasury term premium: 

1. Credit agency Moody’s Rating joined the S&P Global Ratings and Fitch Ratings in downgrading US debt on May 16, citing “this one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns”.
2. Federal Reserve Governor Christopher Waller recently said bond traders were “surprised” by a lack of “fiscal restraint” in the House GOP’s bill: “The markets are watching the fiscal policy … the bill being put through the House and the Senate, and they have some concerns about whether it’s going to be reducing the deficit”. 

Both examples above reflect the growingly deteriorating fiscal position of the US government, which has resulted in investors demanding higher yields in order to continue funding the US government’s fiscal deficits plan.

The Yield Curve

Our analysis has so far been limited to the 10-year US treasury yield. However, the 10Y treasury yield has not reacted in isolation to changes in the macro environment. The chart below displays the spread between the 30-year treasury yield and the 10-year treasury yield, alongside the shorter-tenor 2-year maturity, which is more reactive to changes in the Federal Reserve’s monetary policy.

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The 10s30s has steepened significantly since late 2023 and is now at its highest level since mid-October 2021 (0.5%). Back then, long-end treasury yields rose in anticipation of a tightening in financial conditions (indeed the Fed began their hiking cycle shortly thereafter at the beginning of 2022). Compared to the current steepening in the 10s30s, the 2Y treasury yield was trading much lower, at just 0.36%.

Today, the 10s30s is once again back above 0.5%, but the 2-year treasury yield is at a much higher 3.87%. While the curve has steepened to match the 2021 levels at the back end, that steepening has occurred at an already much higher level of the front end.

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BTC and the 10Y Yield

The US 10-year treasury yield acts as a barometer for investor’s risk appetite – it encodes expectations of growth, inflation and US government debt and can often reduce the attractiveness of riskier assets, if investors can earn a higher “risk-free” rate of return. On March 18 this year, the rolling 90 day correlation of daily BTC returns and daily changes to the US 10-year treasury yield reached its highest levels (0.32) since 2015. 

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The last time the correlation between the two was at these levels was during the Covid market crash in March 2020. Back then, the correlation between moves in BTC and the 10Y yield spiked when 10-year treasury yields collapsed sharply and BTC sold off by more than 50% as risk-on sentiment across the board was slashed. During this time period, investors sought refuge in US treasuries, which meant yields fell in the rush to safe-haven assets and cash. 

This April we saw a similar, but smaller-scale repeat of this price behaviour. From January to early April, the 10Y yield fell by more than 50bps, while BTC dropped from its then inauguration highs of $109K, resulting in the correlation between the two to peak in mid-late March 2025. It then sharply snapped to zero when BTC sold-off after President Trump’s Liberation Day tariff announcements, while the 10-year yield added an exact 50bps to touch 4.5%. That divergence did not last long – the correlation has since moved back up, and is currently at 20%. 

The most recent return of the positive correlation is however due to an opposite move in BTC and the 10Y treasury yield compared to what we saw in March 2020. Despite Covid and President Trump’s onslaught of tariffs both acting as a shock to US GDP and growth, in 2020 we saw yields fall concurrently with BTC – this time, BTC and the 10Y treasury yield have been moving up alongside one another, as opposed to investors buying US treasuries and selling BTC. That suggests the other forces contributing to the rise in the 10Y treasury yield such as fiscal deficit concerns, rising term premia and the ‘Sell America’ narrative may have had some benefit for BTC. 

It is difficult to definitively back that claim – BTC only recovered from its fall to $75K Bitcoin’s when a semblance of calm returned to markets after President Trump reversed course on his tariffs, and announced a 90 day pause – that was the same time when all risk-on assets began to move up simultaneously. 

Nonetheless, there is a fundamental difference in the macro environment between 2020 and the present day. Back then, the correlation spiked against a backdrop where investors rushed to what has traditionally been the port of safety against macro storms – US treasuries. This time, according to the Fed meeting minutes, the move in yields is less growth or inflation concerns, but instead term premium and a move away from US treasuries. Indeed if we look at term premium and BTC, they have been tracking one another. 

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The spike in US long-term yields has also been accompanied by a large sell-off in the US dollar. According to Fed President Neel Kashkari, the combination of bond yields rising and the dollar weakening “lends some more credibility to the story of investor preferences shifting” – that is, investors adjusting away from US dollar denominated assets. The simultaneous selloff is an unusual divergence however, as the US dollar generally tracks the 10Y yield, given that higher yields typically increase the appeal of the US dollar.

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The deterioration in the US dollar, which is down -8.97% year-to-date has at least partially aided BTC’s recent run to a new ATH of $111K. We see that in the chart below which plots BTC’s daily returns when measured against a base of various major currencies. Fixed to April 9, when President Trump paused his reciprocal tariffs – BTC has rallied against all 5 of the currencies plotted, with the returns in terms of USD being higher than the Euro or Sterling.

Term Premia, Yields and Bitcoin

The recent macro environment has been characterised by extreme and complicated relationships between a multitude of assets. In this report, we covered traditionally safe-haven assets such as US treasuries and the US dollar, US risk-on equities, and newer entrants to the macro scene like Bitcoin. The recent rise in the 10-year US treasury yield partly reflects the increasing concerns surrounding the fiscal outlook of the US, which has translated into the highest term premium since 2014. 

BTC’s correlation with the 10-year treasury yield recently reached its highest levels since 2015, exceeding even the jump in the correlation we saw during the Covid market crash of 2020. Unlike the Covid-era correlation spike, which was driven by a rush into safe-haven assets that saw BTC suffer, the more recent increase in the correlation is emerging alongside a broader repricing of US risk. Bitcoin’s recovery despite rising yields suggests that investors may be looking at the asset as a diversification away from typical dollar-denominated assets. That shift in investor preference has been further amplified by the concurrent selloff in the US dollar and US treasuries.