For 20 years, American investors had virtually free insurance. As stock prices fell, Treasuries rallied, and losses on one side of the portfolio were partially covered by gains on the other. This relationship became so trusted that entire industries built products around it and entire generations of allocators began to treat it as a given.
However, it stopped working around 2020 and hasn’t really worked since then.
UBS currently estimates the two-month rolling correlation between the S&P 500 and 10-year Treasury yields to be -0.69, the lowest since 1996.
This means that stocks and bonds are interlocked at levels not seen in the past 30 years, and the assets that existed to offset stock losses are now sources of losses.
If bonds are not safe, what is the safe haven?
It’s easy to say that the bond-equity fusion was because investors lost faith in U.S. government bonds. However, as always, the answer is much more complicated than that. The data shows that investors still want the safety they get from bonds, but now they want it without duration.
Duration is the sensitivity of a bond price to changes in interest rates. The 30-year Treasury protects holders from nominal default and fully exposes them to developments in inflation and policy interest rates. Although these are two different risks, this distinction was less important after the 2008 financial crisis as inflation was largely stagnant.
When inflation starts to rise, the hedge collapses. The correlation between stocks and bonds depends less on the actual level of inflation and more on its volatility. It also depends on what moves the market, such as news about growth or news about inflation.
When growth prevails, stocks and bonds react in opposite directions, as slower growth hurts stocks and helps bonds. When inflation prevails, both move in the same direction because rising inflation hurts both equally. The AQR study found that this explains roughly 70% of the long-term variation in the correlation between stocks and bonds in the United States, with similar results internationally.
Inflation has been the dominant factor since 2022 and remains dominant for a longer period of time than we have ever seen. Even reports of calming inflation, such as the June report that lowered the headline CPI to 3.5% and pushed long-term interest rates back towards 5% for 30 years, did not change anything. This is because the volatility of inflation is the issue, not a single reading of inflation.
The 30-year U.S. Treasury yield exceeded 5% for the first time since 2007 and has remained above that line for much of 2026, hovering around 5.1% as of July 16. Earlier this year, a $25 billion 30-year bond auction was sold by more than 5%, marking the first time in 18 years that investors had received that much money for long-term bonds.
The U.S. budget deficit is projected to widen from about 5.8% of GDP in 2026 to 6.7% by 2036, with net interest payments increasing as a share of the economy every year. In total, OECD governments will need to raise around $18 trillion this year.
While supply is increasing, overseas demand is waning. Japanese investors sold $29.6 billion in U.S. government, agency and municipal bonds in the first quarter, the biggest net short squeeze since 2022, as domestic yields finally made holdings more valuable. Japan’s 10-year bond has surpassed levels last seen in 1997, and Germany’s 10-year bond has hit a 15-year high. Global auctions that have kept long-term borrowing costs down for two decades are being withdrawn en masse in several places, and term premiums are the price to pay for those withdrawals.
All of this tells us that investors are buying dollars, bills, and short-term notes that are liquid and have little duration. They sell a long end that carries everything. This is a 180-degree turn in the haven trade and explains how the dollar can remain strong in a week when 30-year bonds are selling.
Where does this leave Bitcoin?
Bitcoin is currently as sensitive to the macro environment as the dollar or gold.
BTC performs when real yields fall, when the dollar weakens, when financial conditions ease, and when investors start looking for alternatives to traditional assets. A rise in the Treasury brings the first three pillars at once, so a fall in the bond market loses three pillars at once. Bitcoin’s rally back above $64,000 this week was driven by moderate inflation reports that pushed down front-end yields.
Société Générale’s research identifies the deterioration level of the relationship between yields and stock prices at around 4.5% over 10 years. Below that, a rise in yields and a rise in stock prices may coexist. Beyond that, further increases will cause the stock price to fall through the discount rate channel.
Goldman Sachs came to a similar conclusion from a different angle, warning that rising yields are compressing the risk premium on stocks, leaving investors with little compensation for holding stocks compared to risk-free assets. It has been above that threshold for much of the past decade through 2026, and has only eased to about 4.55% after this week’s cooler data.
Bitcoin sits on the outside of the same curve than stocks, which means it absorbs both pressures at once. A higher risk-free yield increases the opportunity cost of holding an asset that does not pay a coupon. Falling stock prices reduce risk appetite to fund stock positions.
Neither problem is unique to cryptocurrencies, so they cannot be solved by cryptospecific news. That’s why regulatory developments in Washington have prevented bidding from being held multiple times this year.
But despite their correlation, this is not a battle between Bitcoin and US Treasuries. In an inflation risk-off regime, they compete without any profit. They are on the same side of a single position selling duration and volatility to raise cash. The potential for gold, long-term bonds, and Bitcoin to all fall while the dollar remains strong in the same week shows how much interest rate and volatility exposure everyone wants to own right now.
Financial conditions that produce long-term yields of 5%, deficits, interest burdens, and declining foreign bids are the same conditions that make fixed supply assets outside the sovereign credit system attractive to institutional investors.
Some of that capital is already showing up in $15 billion of tokenized U.S. Treasuries currently held on-chain, a crypto-native bet on yield rather than scarcity. The problem for Bitcoin is that conditions that strengthen long-term gains can hurt in the short term.
The Ministry of Finance can regain the role it played from 2000 to 2019. This will require inflation volatility to subside, growth risks to become a key input again, and the Fed to have room to ease into weakness.
We’ve seen this combination of factors in previous inflation shocks, and so far there’s nothing to rule out the possibility of it occurring after this one. A single soft inflation month is not such a combination, but it is the kind of data point that will eventually build towards it.
Until that happens, Bitcoin will trade in a market where the world’s deepest asset class can no longer absorb shocks on anyone’s behalf. This removes the floor for all risky assets and removes the floor for assets that don’t cost you money to wait the fastest.
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