On September 17, the American Federal Reserve (Fed) should largely reduce interest rates by 25 base points, which reduces the reference range to 4.00% to 4.25%. This decision will probably be followed by greater billing in the coming months, which has managed to reduce to around 3% in the next 12 months. The long -term market for federal funds reduces a drop in the rate of federal funds to less than 3% by the end of 2026.
Bitcoin The bulls are optimistic that the expected relaxation will push the treasure yields that are highly lower, thus encouraging an increase in risks on the economy and the financial markets. However, the dynamics are more complex and could lead to results that differ considerably from what is planned.
Although Fed rate drops could weigh on the two -year -old treasure yield, people at the long end of the curve may remain high due to budgetary concerns and sticky inflation.
Debt
The US government is expected to increase the issuance of treasure bills (Short -term instruments) And finally, the longer -time Treasury noted to finance the package recently approved by the Trump administration of prolonged tax discounts and an increase in defense expenses. According to the Congressal Budget Office, these policies are likely to add more than 2.4 billions of dollars to primary deficits over ten years, while increasing the debt by nearly 3 dollars, or about 5 billions of dollars if they are permanent.
The increased debt offer will likely weigh the prices of obligations and lifting yields. (Bond prices and yields move in the opposite direction).
“The eventual decision of the US Treasury to issue more tickets and bonds will put pressure on longer -term yields,” said T. Rowe Price analysts, a global investment management company, in a recent report.
Budget concerns have already permeated longer -term cash tickets, where investors demand higher yields to lend money to government for 10 years or more, known as the term in the long term.
The ongoing reduction in the yield curve – which is reflected in the widening of the difference between the yields of 10 and 2 years, as well as the yields of 30 and 5 years and led mainly by the relative resilience of long -term rates – also indicates increasing concerns concerning budgetary policy.
Kathy Jones, Chief Executive Officer and Chief Schwab Center for Financial Research revenue, expressed similar opinion this month, noting that “investors require higher return for long-term treasury bills in order to compensate for the risk of inflation and / or damping of the dollar as a consequence of high debt levels”.
These concerns could prevent the drop in long -term bond yields, Jones added.
Stubborn inflation
Since the Fed began to reduce rates last September, the US labor market has shown significant weakening signs, strengthening expectations for a faster rate of Fed rate drops and a decrease in treasury yields. However, inflation has recently increased more, complicating these perspectives.
When the Fed reduced rates in September of last year, the annual slip inflation rate was 2.4%. Last month, it amounted to 2.9%, the highest since reading 3% in January. In other words, inflation has resumed the momentum, weakening the arguments for faster supply rate reductions and a decrease in treasury yields.
Relieve yourself at the price?
The yields have already undergone pressure, probably reflecting the anticipation by the market for federal reserve rate drops.
The 10 -year yield slipped to 4% last week, reaching the lowest since April 8, according to Data Source TradingView. The reference yield fell on 60 base points compared to its May summit of 4.62%.
According to Padhraic Garvey, CFA, Reargeal of research, America to ING, the 4% decline is probably an exceeding of the disadvantage.
“We can see that the targeting of the 10 -year -old treasure yields is even lower because an attack on 4% is successful. But this is probably an exceeding of the decline. Higher inflation printing in the coming months will probably lead to long -term yields, requiring a significant adjustment,” Garvey said in a note to customers last week.
Perhaps rate reductions have been evaluated and yields could bounce hard after the September 17 movement, in a rehearsal of the 2024 model. The Dollar index suggests the same thing, as indicated at the start of the week.
2024 lesson
The yield in 10 years has dropped by more than 100 base points to 3.60% in about five months before the drop in rates in September 2024.
The central bank made additional rate drops in November and December. However, the yield at 10 years old was overwhelmed with the move in September and increased to 4.57% by the end of the year, finally reaching a summit of 4.80% in January of this year.
According to ING, the resumption of yields after relaxation was motivated by economic resilience, sticky inflation and budgetary concerns.
To date, although the economy has weakened, inflation and budgetary concerns have aggravated as previously discussed, which means that the 2024 model could repeat itself.
What does this mean for BTC?
While the BTC has rallied from $ 70,000 to more than $ 100,000 between October and December 2024 despite the increase in long-term yields, this increase was mainly fueled by optimism concerning Pro-Crypto regulatory policies under President Trump and the growing adoption of BTC and other tokens.
However, these support stories were considerably weakened by looking back a year later. Consequently, the possibility of a potential hardening of yields in the coming months weighing on Bitcoin cannot be rejected.
Read: Here are the 3 things that could spoil the Bitcoin rally to $ 120,000
