Foreign media reports suggest that recent signals from the US Treasury market are weakening the foundation for Bitcoin's short-term rally. With the yield curve flattening significantly, market expectations are rising that the Federal Reserve will maintain high interest rates for longer, leading to a cooling of interest rates on non-interest-bearing assets.
The spread between 10-year and 2-year yields narrowed.
According to data cited in the article, the spread between the yields on 10-year and 2-year U.S. Treasury bonds has narrowed to 28 basis points, the lowest since April 2025. The spread between the yields on 30-year and 5-year Treasury bonds has also fallen to its lowest level since April last year, indicating that this change is not a fluctuation in a single maturity.
The article cites Skanda Amarnath, executive director of policy research firm EmployAmerica, as saying that a flattening yield curve is one of the clear signals that the Federal Reserve is turning hawkish. If the market continues to bet on high interest rates to persist for longer, fixed-income assets will become more attractive than assets like Bitcoin that do not generate coupon payments.
The market no longer trades expectations of interest rate cuts.
The article points out that the yield curve steepened at the beginning of this year as the market widely priced in expectations of interest rate cuts, which was seen as a boon for risk assets, including crypto assets. Now that the curve has flattened again, it means that the macroeconomic backdrop that previously supported risk appetite is weakening.
From a bond market pricing perspective, the 2-year yield typically reflects the market's assessment of the Federal Reserve's short-term policies, while the 10-year yield reflects medium- to long-term expectations of growth and inflation. When the spread between the two narrows, it usually means that the market either expects short-term interest rates to remain high or is more cautious about long-term growth. The article argues that this time it's closer to the former.
The Fed's dot plot revised upward its interest rate expectations.
This assessment aligns with market interpretations following the Fed's latest meeting. The article states that while the Fed kept interest rates unchanged this week, its overall tone was hawkish. New Chairman Kevin Warsh emphasized the committee's continued commitment to price stability, and the updated dot plot shows interest rate projections for the coming years are higher than in March.
- Interest rates are projected to rise to 3.8% in 2026, up from 3.4% in March.
- Interest rates are projected to rise to 3.6% in 2027, up from 3.1% in March.
- Interest rates are projected to rise to 3.4% in 2028, up from 3.1% in March.
There are also disagreements within the committee regarding the next steps. The article states that one official expects a rate cut, eight expect no change, three expect one rate hike, five expect two rate hikes, and one expects three rate hikes.
Against this backdrop, the article argues that it will not be easy for Bitcoin to re-enter a strong upward phase, and it may still face pressure in the short term. The article also mentions that, based on the commonly discussed four-year halving cycle, this round of adjustment may still require time to digest.
