A 6% yield on the 10-year U.S. Treasury would normally be viewed as a major headwind for bitcoin, but the reason behind the increase could be more important than the level itself.
The benchmark 10-year Treasury yield has been climbing for months as borrowing costs across the U.S. economy rise. Some market analysts now expect the yield to reach 6%, a level last recorded in 2000.
For bitcoin, however, higher yields do not automatically translate into weaker performance. The impact on assets without traditional cash flows or built-in yields, including bitcoin and gold, can vary depending on what is driving the bond market.
A rise caused by Federal Reserve tightening would represent a different environment from one driven by concerns over government deficits, debt sustainability and the term premium. In the latter case, investors demanding greater compensation to hold U.S. debt could signal growing concerns about the country’s fiscal position, potentially strengthening the case for alternative assets such as bitcoin.
Recent CoinDesk analysis found that bitcoin has generally shown little correlation with Treasury yields over longer periods.
“When yields rise because the Fed is tightening, bitcoin suffers. When yields rise on fiscal and term-premium concerns, the picture flips,” Markus Thielen, founder of 10x Research, wrote in a note to clients Tuesday. Thielen expects the 10-year yield to reach 6% in the coming months.
The 2022 Example
Bitcoin’s performance during the 2022 tightening cycle illustrates the difference.
That year, the 10-year Treasury yield more than doubled to 3.88% as the Federal Reserve aggressively raised interest rates to contain inflation. The central bank implemented several 50- and 75-basis-point increases during the campaign.
Bitcoin subsequently lost 64% in 2022, with tighter monetary conditions and rising yields adding to pressure from a series of crypto industry failures and scams.
Since the end of 2023, the relationship has been less straightforward. The 10-year yield has increased 135 basis points to 5.23%, its highest level since 2007. Bitcoin, meanwhile, has approximately doubled to $86,000 over the same period, despite falling from an October high above $126,000.
Thielen and other market observers have attributed much of the recent Treasury selloff to concerns about government finances and a higher term premium. Investors are effectively seeking greater returns for committing money to long-dated bonds amid uncertainty over inflation and the government’s growing borrowing requirements.
Strategic Analytics, based in Chicago, has offered a similar interpretation for gold. The firm recently argued that gold has increasingly reflected perceptions of fiscal risk rather than simply tracking the Federal Reserve’s policy direction.
“Since 2022, gold has increasingly tracked fiscal-risk perceptions – term premium, deficits, debt sustainability – rather than the Fed’s policy path. Gold is not defying real yields. It is pricing fiscal sustainability and currency debasement, which has become the marginal driver,” the firm said in a LinkedIn post.
The Case for a 6% Yield
Analysts forecasting a 6% 10-year yield are largely pointing to persistent government debt concerns and strong nominal economic growth.
Thielen highlighted the gap between Treasury yields, nominal GDP growth and the expansion of federal debt. The 10-year yield stands at 5.24% compared with nominal GDP growth of 6.56%, while federal debt has grown by roughly 8.5% annually since 2020.
“The key point is that yields still sit well below nominal GDP growth (5.24% vs 6.56%), and far below the roughly 8.5% annual growth of federal debt since 2020, so bondholders are not yet being compensated for the pace at which the nominal economy and the debt stock are expanding,” Thielen said.
Dan Niles, founder of Niles Investment Management, also pointed to 6% as a possible level for the 10-year yield during a CNBC appearance.
Niles cited a federal deficit equivalent to roughly 6% of GDP and noted that large AI-focused technology companies are also seeking significant amounts of financing in the debt markets.
The result is competition for capital: the U.S. government continues issuing bonds to finance persistent deficits while major AI companies raise large amounts of debt. Greater demand for funding can increase borrowing costs and place further upward pressure on Treasury yields.
For bitcoin, the critical distinction remains the source of that pressure. If yields rise because the Federal Reserve returns to rapid rate hikes, the conditions that contributed to bitcoin’s 2022 decline could become relevant again.
