On September 17, the US Federal Reserve (FED) is widely expected to cut interest rates by 25 points of points, decreasing the benchmark range to 4.00%-4.25%. This step is likely to be followed by a further avoidance in the coming months, taking rates up to about 3% within the next 12 months. The Fed Funds Futures Market discounts a Fed fund rate drop of less than 3% by the end of 2026.
Bitcoin The bulls are optimistic that the expected emergence will push the yields of the wealth less, thus Encourages rising risk Throughout the economy and financial market. However, dynamics are more complex and can lead to outcomes that differ greatly from the expected.
While the expected reduction in the Fed rate can be weighed in two years of treasury, those at the long end of the curve may remain elevated due to fiscal concerns and adhesive inflation.
Debt supply
The US government is expected to increase the issuance of bills in the ark (short -term instruments) And ultimately the longer duration of Treasury notes to finance the recently approved Trump administration package of extended tax deductions and increased defense expenditure. According to the budget office of CongressThese policies are likely to add more than $ 2.4 trillion to major deficiencies in ten years, while increasing the debt by nearly $ 3 trillion, or approximately $ 5 trillion if made permanently.
Increased debt supply is likely to weigh bond prices and yields. (Bond prices and yield moves in the opposite direction).
“The final transfer of the US treasury to issue more notes and the bonds will force longer yields,” the analysts at T. Rowe price, a global investment management, told A Recent report.
Fiscal concerns have permeated longer Treasury notes, in which investors demand increased yields to lend money to government for 10 years or more, known as Term Premium.
Continued steepening of the yield curve-which is reflected in the expansion of the spread between the 10- and 2-year yield, as well as the 30- and 5-year yield and driven especially through relative stability of long-term rate-dins signals that add concerns about fiscal policy.
Kathy Jones, Managing Director and Chief Income Strategist at the Schwab Center for Financial Research, expressed a similar opinion this month, Noting that “investors are demanding an increased yield for long-term wealth to compensate the risk of inflation and/or removal of dollars as a consequence of high debt levels.”
These concerns can maintain the long -term bond yield from the fall of many, Jones added.
Stubborn inflation
Since the Fed started cutting rates in September, the US manufacture market showed signs of significant weakening, strengthening expectations for faster speed of Fed rate cuts and a reduction in Treasury’s yields. However, inflation has recently been raising higher, which is complicated that perspective.
When fed cut rates in September last year, the year-on-year Inflation rate is 2.4%. Last month, it stood at 2.9%, the highest since 3% of January reading. In other words, inflation has again acquired momentum, weakening the case for faster fed rates and a collapse in Treasury’s yields.
Easing price in?
The yields are under pressure, likely to reflect the market expectation of federal reserve rates.
The 10-year yield slipped 4% last week, hitting the lowest since April 8, according to Data Source TradingView. The benchmark yield dropped more than 60 points basis from May high 4.62%.
According to Padhraic Garvey, CFA, Regional Research Region, America In Ing, falling to 4% is likely an overshoot on the downside.
“We will see the 10yr Treasury targeting targeting less as an attack at 4% is successful. But it is likely that an overshoot on the downside. Higher inflation copies in the coming months are likely to produce a long yield of some issues, which requires a significant arrangement,” Garvey said in a note in the clients last week.
Perhaps the rates in the rate are that they are priced, and the produce can be bounced back following the Sept. 17, in a repeating pattern of 2024. The dollar index suggests the same, As mentioned early this week.
Lesson from 2024
The 10-year yield fell by more than 100 points basis in 3.60% in nearly five months leading to the September 2024 rate cut.
The Central Bank delivered additional rates in November and December. However, the 10-year yield dropped along with the September move and rose 4.57% by the end of the year, eventually reached a high 4.80% in January this year.
According to the ING, the uprising of the produce following the emergency is driven by elastic economic, sticky inflation, and fiscal concerns.
As now, as the economy weakens, inflation and fiscal concerns deteriorate as discussed earlier, which means that the pattern of 2024 can repeat itself.
What does this mean for BTC?
While the BTC rallied from $ 70,000 to more than $ 100,000 between October and December 2024 despite increasing long-term harvest, this advance was primarily fueled by optimism around pro-C-C-Crypto regulatory policies under President Trump and growing BTC corporation adoption and other tokens.
However, those who support these narratives will significantly weaken the return -a year later. Consequently, the likelihood of a potential hardening of produce in the coming months weighing in bitcoin cannot be removed.
Read: Here are 3 things that can break the Bitcoin rally towards $ 120k
