In bad news for crypto bulls, analysts at Dutch bank ING highlighted the potential for a breakout in the 10-year US Treasury yield, currently at 4.09%, which is in line with CoinDesk’s outlook.
The yield showed resilience, holding above 4% despite several weak economic numbers, including Wednesday’s negative ADP jobs report for November, which marked the third contraction in five months. A higher yield could tighten financial conditions, discourage risk-taking and weigh on riskier assets, including cryptocurrencies.
“Treasuries love this 4% to 4.1% trading range. A temporary break below is more likely. But a break above has more legs,” the bank said in an analyst note to clients Thursday.
The yield, the U.S. government’s benchmark borrowing cost, fell 2 basis points to 4.06% following ADP’s report, then quickly reversed. It was unusual. Weak jobs data and moderate inflation generally indicate that interest rates will fall to stimulate the economy.
The same goes for interest rate cut expectations from the Federal Reserve, which rose to an 87% chance of a cut this month. Yet the 10-year yield has traded between 4% and 4.20% since September, a key point highlighted by CoinDesk earlier this week.
ING attributes this rigidity to structural changes in the American economy, where productivity gains, partly driven by artificial intelligence, play a more important role than employment in driving growth.
“Treasuries have built a certain resilience in the face of the discourse on weak employment,” write the analysts. “Partly because there are fewer immigrants entering the country in net terms, requiring less job creation. But also because it is productivity growth rather than employment growth that determines the future (AI, among others).”
Friday’s Personal Consumption Expenditures (PCE) report could generate volatility on the 10-year yield.
According to ING, a more moderate report could push yields below 4%, but any decline would likely be temporary. On the other hand, a decisive break above 4.1% could be more structural and set the tone until 2026.
