Markets are increasingly pricing in four more Federal Reserve rate increases, as higher bond yields and a stronger dollar weigh on bitcoin and gold.
Treasury yields are rising across maturities as traders prepare for a prolonged period of restrictive monetary policy. CME FedWatch data shows markets see a 4.75% to 5% federal funds target range by June 2027 as the most likely outcome.
That would represent four additional 25-basis-point hikes from the current 3.75% to 4% range. The Fed has already increased rates by 25 bps this month.
The selloff in Treasuries is visible across the yield curve. The 20-year yield is nearing 5.5%, pushing the long-duration Treasury ETF TLT to record lows below $80. Meanwhile, the 10-year yield has climbed above 5.1%, reaching levels not seen since 2007. Bond markets outside the U.S. are facing similar pressure, with yields rising in France, Germany, the U.K. and Japan.
Higher yields and dollar strength are adding pressure to risk assets. The dollar index has moved above 101 and has gained 3% this year. Bitcoin has dropped below $83,000 after reaching a local high of $87,500, while gold is holding slightly above $4,200, down 25% from its January record.
Several factors are driving Treasury yields higher. The U.S. economy continues to show strength, with the S&P Global composite PMI, covering both manufacturing and services, beating forecasts in September and rising nearly 4.3% to 58.4.
Uncertainty surrounding inflation has also increased amid renewed tensions in the Middle East, contributing to higher oil and diesel prices.
Meanwhile, substantial borrowing to finance AI infrastructure is adding to the supply of bonds competing with Treasuries for investor demand. Strong economic growth, inflation concerns and increased competition for capital are combining to push yields higher.
The Japanese yen has continued to weaken against the dollar, with the exchange rate returning to around 159 yen per dollar. That erases much of the yen’s recovery toward 153 after reports of U.S. and Japanese intervention last month.
The focus now turns to whether expectations for additional Fed rate hikes will drive Treasury yields and the dollar even higher.
