Will the U.S. 10-year Treasury yield at 5% become the new normal? The real trouble is that it’s starting not to listen to the Fed
The Fed just added 25 bps, yet long-term bond yields didn’t really give it face. The 10-year yield even briefly returned to 4.95%, and then hovered again near 5%, while the 30-year yield keeps holding above 5%. At the same time, the short end—the 2-year—has already risen to about 4.7%.
The market is starting to do a different calculation: the short end looks to the Fed, but the long end looks at how much the U.S. will need to borrow in the future, whether inflation will keep sticking around, and how large the term premium will be. The U.S. fiscal deficit, massive new issuance, and corporate funding needs are all competing for capital. By the end of August, the cumulative U.S. fiscal-year deficit reached $1.97 trillion, exceeding the full-year level from the prior fiscal year.
That’s not very pleasant for $BTC and for U.S. equities. Because with a 10-year yield at 5%, risk-free assets can already provide fairly high returns. Valuation-rich assets then need an even stronger growth story to compete for capital. BTC is currently around $76,000. It has clearly pulled back from this month’s peak above $82,000. And right when ETF inflows have weakened and CLARITY has run into resistance, the liquidity backdrop isn’t friendly.
For now, I won’t directly define “5%” as the new normal, but 5% is shifting from being a psychological threshold to becoming a valuation threshold. If later the 2-year yield stabilizes as rate-hike expectations settle, yet you still see the 10-year and 30-year yields pinned near 5%, then that would be a problem—because what the market is truly pricing is no longer “whether the Fed will raise rates again,” but rather the possibility that the cost of long-term U.S. funding may be permanently higher.
At that point, BTC, U.S. tech stocks, even AI assets will all have to answer one question again: why should I give up the risk-free 5% return?
The Fed just added 25 bps, yet long-term bond yields didn’t really give it face. The 10-year yield even briefly returned to 4.95%, and then hovered again near 5%, while the 30-year yield keeps holding above 5%. At the same time, the short end—the 2-year—has already risen to about 4.7%.
The market is starting to do a different calculation: the short end looks to the Fed, but the long end looks at how much the U.S. will need to borrow in the future, whether inflation will keep sticking around, and how large the term premium will be. The U.S. fiscal deficit, massive new issuance, and corporate funding needs are all competing for capital. By the end of August, the cumulative U.S. fiscal-year deficit reached $1.97 trillion, exceeding the full-year level from the prior fiscal year.
That’s not very pleasant for $BTC and for U.S. equities. Because with a 10-year yield at 5%, risk-free assets can already provide fairly high returns. Valuation-rich assets then need an even stronger growth story to compete for capital. BTC is currently around $76,000. It has clearly pulled back from this month’s peak above $82,000. And right when ETF inflows have weakened and CLARITY has run into resistance, the liquidity backdrop isn’t friendly.
For now, I won’t directly define “5%” as the new normal, but 5% is shifting from being a psychological threshold to becoming a valuation threshold. If later the 2-year yield stabilizes as rate-hike expectations settle, yet you still see the 10-year and 30-year yields pinned near 5%, then that would be a problem—because what the market is truly pricing is no longer “whether the Fed will raise rates again,” but rather the possibility that the cost of long-term U.S. funding may be permanently higher.
At that point, BTC, U.S. tech stocks, even AI assets will all have to answer one question again: why should I give up the risk-free 5% return?