Key takeaways:
Rising bond yields reflect growing concern about fiscal stability and inflation, leading some investors to question US Treasury’s traditional role as a safe-haven asset.
Bitcoin defies conventional risk models, rising not because of worsening macro conditions, but possibly because of them.
Bitcoin (BTC) climbed to new heights amid an increasingly fragile global macroeconomic backdrop. Bond yields are surging in the US and Japan, global growth is stalling, and consumer confidence in the US is scraping historic lows.
Paradoxically, the very macro conditions that once threatened Bitcoin’s price are now fueling its rise. The shift speaks to a broader transformation in how investors interpret risk and where they seek refuge. At the center of this realignment is the US debt crisis and the ballooning Treasury yields, which were once considered the safest assets in the world.
Why are US Treasury yields so important?
When US bond yields rise, the cost of servicing its national debt increases sharply — a critical issue given that US debt has now surpassed $36.8 trillion, and the interest payments are expected to total $952 billion in 2025.
US President Donald Trump made it clear on several occasions that lowering yields was among his top economic priorities. However, this may prove far more difficult than he expected, as the two most reliable methods to achieve it both need to come from the US Federal Reserve. Lowering interest rates would make newly issued bonds yield less, making existing higher-yielding bonds more attractive, pushing up their price and lowering their effective yield. Another way is through quantitative easing (QE), where the Fed would buy large amounts of bonds on the open market, thus increasing demand and lowering yields.
The Federal Reserve is currently resisting both strategies and taking caution not to reignite inflation, particularly amid the ongoing tariff war. Even if Trump finds a legal or quasi-legal way to pressure Fed Chair Jerome Powell, it could backfire by eroding investor confidence and producing the opposite of the intended effect.
Investors do not appreciate political meddling with the foundations of the US and global economy, and their confidence is already fragile. In times of instability, investors traditionally flock to government bonds as a safe haven. But today, the opposite is happening. Investors are turning away from Treasurys, suggesting the problems in the US economy are too large to ignore. The recent loss of the US government’s last AAA credit rating is a stark confirmation.
The worrying yield surge in the US and Japan
On May 22, the yield on the US 30-year bond hit 5.15% — its highest since October 2023, and before that, a level not seen since July 2007. The 10-year yield now stands at 4.48%, the 5-year yield at 4%, and the 2-year yield at 3.92%.
For the first time since October 2021, the US 5-Year to 30-Year bond spread has steepened to 1.00%. This suggests markets are pricing in stronger growth, persistent inflation, and a “higher for longer” rate environment.
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Compounding the problem is Japan, the largest foreign holder of US Treasurys. Japanese investors currently hold $1.13 trillion in US government debt, $350 billion more than China. For decades, Japanese institutions borrowed cheaply at home to invest in US bonds and stocks — a strategy known as the carry trade.
This era may be ending. In March 2024, the Bank of Japan started raising interest rates from -0.1% to 0.5% now. Since April, the Japanese 30-year bond yield has surged by 100 basis points, reaching an all-time high of 3.1%. The 20-year bond yields rose to 2.53%, a level not seen since 1999.
On May 19, Prime Minister Shigeru Ishiba even warned the country’s parliament that his debt-strapped government’s position was “worse than Greece” — a startling admission for a country with a 260% debt-to-GDP ratio.
Interestingly, the surge in long-dated Japanese bonds wasn’t matched by shorter maturities. The 10-year bond yield is 1.53%, and the 5-year bond yield is just 1%. As Reuters noted, this suggests a strategic shift by large Japanese pension and insurance funds as the Bank of Japan “normalizes” interest rates. These institutions may now be reassessing both duration risk and foreign bond exposure, which spells potential trouble for US Treasurys if (or when) they begin unwinding their holdings.
Will bond volatility continue to impact Bitcoin price?
As the US continues down the debt spiral, and Japan might be starting its own, the global economy is nowhere near recovery, and that could be a good sign for Bitcoin.
Traditionally, rising bond yields would drag down risk assets. Yet stocks and Bitcoin continue climbing. This divergence suggests investors may be moving away from the traditional playbook. When confidence in the system erodes, assets outside it, like stocks and Bitcoin, begin to shine, even if they are considered risk-on.
What’s more, between Bitcoin and US stocks, an increasing number of institutions choose Bitcoin. As The Kobeissi Letter noted, net 38% of institutional investors were underweight US equities in early May, the lowest since May 2023, according to BofA.
Meanwhile, according to CoinGlass, total inflows into spot Bitcoin ETFs continue to grow, with assets under management now exceeding $104 billion, an all-time high. This surge suggests that institutional capital is beginning to recognize Bitcoin not just as a high-performing asset, but as a politically neutral store of value, akin to gold. In an era of mounting instability in fiat debt-based economies, Bitcoin is emerging as a credible alternative, offering a monetary system grounded in predictability and decentralization. With a market cap still well below gold’s $22 trillion or even the $5.5 trillion in base dollars (not including debt), Bitcoin remains significantly undervalued.
Interestingly, the current situation supports both of Bitcoin’s once-contradictory narratives: it is acting as a high-yield risk asset and a safe haven store of value. In a world where old frameworks are failing, Bitcoin’s dual role may no longer be an anomaly, but a sign of what’s to come.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
