BTC price hits a new all-time high as rising bond yields reflect growing concern about fiscal stability and inflation

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.

Rising bond yields are reflecting growing concern about fiscal stability and inflation, leading some investors to question US Treasury’s traditional role as a safe-haven asset amid a turbulent macroeconomic backdrop.

As US bond yields continue their ascent, reaching new highs in the past week, a paradoxical situation is unfolding. Rising yields are usually associated with a deteriorating macroeconomic outlook, which would normally favor Bitcoin (BTC) and see stock markets decline. However, both equities and Bitcoin have been surging amid a fragile global economic landscape.

This divergence suggests that investors may be shifting away from the traditional playbook for navigating market cycles. When confidence in the system erodes, assets outside of it, such as stocks and Bitcoin, begin to perform well.

Moreover, an increasing number of institutions are choosing Bitcoin over U.S. stocks. According to BofA data from earlier May, a net 38% of institutional investors were underweight U.S. equities, the lowest reading since May 2023.

Meanwhile, total inflows into spot Bitcoin ETFs continue to grow, with assets under management now exceeding $104 billion, a new all-time high, according to CoinGlass. This surge suggests that institutional capital is beginning to recognize Bitcoin not just for its strong performance but also as a neutral store of value, much like gold.

In an era of escalating instability in fiat debt-based economies, Bitcoin is emerging as a credible alternative, offering a monetary system characterized by predictability and decentralization, especially when considering the U.S. government’s last remaining AAA credit rating was downgraded by Standard & Poor’s. Bitcoin is also not subject to the whims of politicians, presidents or parties.

Bitcoin’s market cap is still significantly lower than gold’s $22 trillion or even the $5.5 trillion in base dollars (not including debt).

Investors are turning away from Treasuries, which may indicate that the problems in the U.S. economy are becoming too large to ignore.

A troubling development is the rapid increase in 30-year bond yields, which reached 5.15% on May 22. This is the highest level since October 2023, and prior to that, a rate last seen in July 2007.

The 10-year bond yield is now at 4.48%, the 5-year bond yield stands at 4% and the 2-year bond yield is at 3.92%. For the first time since October 2021, the U.S. 5-Year to 30-Year bond spread has also steepened to 1.00%. This suggests that markets are pricing in stronger growth, persistent inflation and a “higher for longer” interest rate environment.

However, the rising interest rates are drastically increasing the cost of servicing the national debt, which has now surpassed $36.8 trillion. At these volumes, interest payments are expected to amount to $952 billion in 2025.

Former U.S. President Donald Trump had mentioned on several occasions that lowering yields was among his top economic priorities. Nonetheless, this may prove far more difficult than he anticipates, as the two most reliable methods to achieve it both need to come from the U.S. Federal Reserve.

Lowering interest rates would make newly issued bonds yield less, rendering existing higher-yielding bonds more attractive, ultimately 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 to avoid reigniting inflation, especially 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 produce the opposite of the intended effect.

Investors do not appreciate any political meddling with the foundations of the U.S. 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. As investors are turning away from Treasuries, it suggests that the problems in the U.S. economy are becoming too large to ignore.

World powers are largely focused on the macroeconomic outlook and how quickly the global economy can recover from the downturn. However, this narrative has largely focused on the threat of recession, while the broader macroeconomic trends are also important.

After a brief period of stability, the International Monetary Fund (IMF) has once again downgraded its outlook for global economic growth in 2024. According to the institution’s economists, the global economy is now expected to grow by 2.4% this year, down from the 2.7% growth rate predicted in April.

Moreover, the institution has also cut its outlook for 2025 to 3.0