US Treasury yields broke 5.18% and hit a 17-year high, putting pressure on crypto assets

According to Woofun AI, the bond market is experiencing a sharp sell-off. The 10-year US bond yield once soared to 5.18%, setting a record high since 2007. This sharp fluctuation in macrofinancial indicators directly caused risky assets such as Bitcoin to face severe capital diversion pressure.

The combination of the resurgence of inflation expectations and the energy crisis forms the core driving up yields. The average interest rate for 30-year mortgages in the US has climbed to 7.45%, rising 150 basis points in just six months, hitting its peak since 2023, when the inflation rate was still above 6.4%.

According to data compiled by Woofun AI, the 10-year US Treasury yield increased by a cumulative total of about 30 basis points over two days, of which the single-day increase was the biggest since “Liberation Day” on April 9, 2025. Looking back at history, the 2007 global financial crisis and subsequent recession drove yields down to close to zero, and during the impact of the COVID-19 pandemic in 2020, that benchmark yield even fell below 0.50%.

However, before the US and Israel attacked Iran, the yield was only 3.97%, and the sharp rise in oil prices caused by the geopolitical conflict quickly changed this pattern. The price of Brent crude oil once again surpassed $105 per barrel, and the price of diesel hit a record high, at a time when global diesel consumption reached a seasonal peak of 2 million barrels per day. The price of gasoline paid by truck drivers is already double what it was nine months ago. American consumers expect the annual inflation rate to reach 4.6%, the third highest in a year. Against this background, the 4% inflation rate is particularly reasonable.

The certainty of policy shifts has further exacerbated market turmoil. Although Kevin Warsh, the new chairman of the Federal Reserve appointed by Trump, had previously made the market inclined to bet on interest rate cuts, this logic was completely broken eight days ago. The Federal Reserve voted unanimously to raise interest rates by 25 basis points. This is the first unanimous vote in more than a year since May 2025, after months of internal controversy and a trend of interest rate cuts. The central bank made it clear that prices would be stabilized, and Kevin Warsh placed the Federal Reserve's 2% inflation target at the core of the policy. Traders are currently expecting an additional rate hike of around 100 basis points by next summer. Bond market trading trends show that officials should have raised interest rates by 50 basis points instead of 25 basis points last week. The US Treasury's efforts to appease the market failed to stop yields from continuing to rise, and yields for various periods resumed an upward trend after a short pause.

The asset-linked effect is showing, and mortgages, stock markets, gold, and cryptocurrencies have all been impacted. Long-term mortgage interest rates in the US have broken through 7% for the first time since the beginning of 2025, and the latest average reached 7.45%. High monthly payments have increased the burden on buyers. Stock market gains have slowed due to a jump in US bond yields, and gold and cryptocurrencies are also under pressure due to their interest-free nature. For crypto traders, Bitcoin and other digital assets do not pay fixed income. When 10-year US Treasury yields close to 5.18%, their appeal far exceeds the level of zero-hour yields, and capital is flowing from volatile assets to safer debts.

Furthermore, Washington must sell large amounts of debt to finance deficits, and increased supply led to lower bond prices and higher yields. Looking ahead, the inflation rate is likely to reach 3% to 4% or more by mid-2027. The purchasing power of the US dollar has declined by about 40% in the past ten years. Continued deficits and inflation will worsen further, and the bond market requires higher return on investment.