Author: CryptoSlate / Andjela Radmilac
Compiled by Deep潮 TechFlow
Shenchao Summary: Over the past 20 years, the traditional hedge relationship—where U.S. Treasuries rose when stocks fell and vice versa—has completely broken down. Now, both are declining in tandem, meaning the final "shock absorber" in investment portfolios has vanished, and Bitcoin, positioned at the far end of the risk asset spectrum, is bearing double pressure.
Over the past 20 years, U.S. investors have essentially enjoyed a free insurance policy: when stocks fell, Treasuries rose, offsetting losses on one side of their portfolios with gains on the other. This relationship was so reliable that the entire industry built products around it, and an entire generation of asset allocators took it for granted.
But this mechanism broke down around 2020 and has not recovered since.
UBS now calculates the two-month rolling correlation between the S&P 500 index and the 10-year U.S. Treasury yield at -0.69, the lowest level since 1996.
This means stocks and bonds are moving in sync to an unprecedented degree over the past 30 years, and the asset that was supposed to offset stock losses has now become a source of those losses.
If bonds are no longer a safe haven, what is?
It’s easy to say that the convergence of bonds and stocks is due to investors losing confidence in U.S. government debt. But as usual, the answer is much more complex. Data shows that investors still seek the safety that bonds provide—but now they want safety without duration risk.
Duration measures a bond's sensitivity to changes in interest rates. A 30-year U.S. Treasury bond nominally protects holders from default but leaves them fully exposed to inflation and the path of policy interest rates. Although these are two distinct risks, this distinction became less significant after the 2008 financial crisis, as inflation remained largely dormant.
Once inflation rises, the hedge becomes ineffective. The correlation between stocks and bonds depends less on the actual level of inflation and more on its volatility. It also depends on what is driving the market: news about growth or news about inflation.
When growth dominates, stocks and bonds move in opposite directions because weak growth hurts stocks but benefits bonds. When inflation dominates, they move in the same direction because higher inflation harms both equally. AQR’s research found that this explains about 70% of the long-term changes in U.S. stock-bond correlations, with similar results observed internationally.
Since 2022, inflation has been the dominant factor, and it has persisted longer than at any time we’ve seen. Even relatively cooler inflation data, such as the June report—which brought the overall CPI down to 3.5% and pushed 30-year yields back toward 5%—hasn’t changed anything, because it’s the volatility of inflation, not any single reading, that’s the issue.
The 30-year U.S. Treasury yield surpassed 5% for the first time since 2007, remaining above this level for most of 2026 and standing at around 5.1% as of July 16. Earlier this year, a new $25 billion auction of 30-year bonds cleared at a yield above 5%, marking the first time in 18 years that investors received such high yields on long-term bonds.
The U.S. deficit is projected to expand from approximately 5.8% of GDP in 2026 to 6.7% in 2036, with net interest payments as a share of the economy rising each year. OECD governments collectively need to raise approximately $18 trillion this year.
As supply increases, foreign demand is thinning. Japanese investors net sold $29.6 billion in U.S. government, agency, and municipal debt in the first quarter—the largest net sell-off since 2022—as domestic yields finally became attractive enough to hold. Japan’s 10-year yield rose to its highest level since 1997, while Germany’s 10-year bond yield hit a 15-year high. Global buying that suppressed long-term borrowing costs for two decades is withdrawing simultaneously across multiple markets, and the term premium is the cost of this withdrawal.
All of this tells us that investors are buying dollars, short-term Treasuries, and short-term bonds—assets that are highly liquid and carry almost no duration risk. They are selling the long end, as it bears all the duration risk. This represents a 180-degree shift from safe-haven trades, explaining why the dollar remained strong even during a week of heavy selling of 30-year Treasuries.
Where does this leave Bitcoin?
Bitcoin is now as sensitive to macroeconomic conditions as the U.S. dollar and gold.
BTC performs well when real yields decline, the dollar weakens, financial conditions ease, and investors seek alternatives to traditional assets. Rising U.S. Treasury prices simultaneously drive all three factors, which is why a decline in the bond market removes all three supports at once. This week’s rebound that pushed Bitcoin back above $64,000 occurred following a mild inflation report that lowered front-end yields.
Goldman Sachs reached a similar conclusion from another perspective, warning that rising yields have compressed the equity risk premium to the point where investors receive almost no compensation for holding stocks over risk-free assets. The 10-year U.S. Treasury yield remained above this threshold for most of 2026, only easing to around 4.55% following this week’s cooler data.
Bitcoin is farther along the same curve than stocks, meaning it absorbs both pressures simultaneously. Higher risk-free rates increase the opportunity cost of holding non-yielding assets. Declining stock prices reduce risk appetite for funding equity positions.
Neither of these issues is unique to cryptocurrencies, so neither can be resolved through cryptocurrency-specific messaging—that’s why regulatory developments in Washington have repeatedly failed to support prices this year.
But despite this correlation, it is not a contest between Bitcoin and U.S. Treasuries. Under inflation hedging dynamics, they are not competing for anything—they stand on the same side of the same position, selling duration and volatility while accumulating cash. Gold, long-term bonds, and Bitcoin can all decline in the same week while the dollar remains strong, telling us that currently, no one wants significant exposure to interest rates or volatility.
The fiscal conditions that generate a 5% long-term yield—deficits, interest burdens, and weakened foreign demand—are precisely what make fixed-supply assets outside the sovereign credit system attractive to institutional holders.
Some of this capital is already visible in the $15 billion of tokenized U.S. Treasuries held on-chain—a crypto-native bet on yield rather than scarcity. The problem with Bitcoin is that the conditions reinforcing its long-term logic are hurting it in the short term.
U.S. Treasuries can reclaim the role they played from 2000 to 2019. This requires inflation volatility to subside, growth risks to once again become the dominant factor, and the Federal Reserve to have room to ease policy during periods of weakness.
We have seen this combination of factors after every previous inflationary shock, and so far nothing rules out it occurring after this one as well. However, a single month of modest inflation data is not yet that combination, even though it is a data point that contributes toward building toward that outcome.
Previously, Bitcoin traded in a market where the deepest asset class in the world no longer absorbed shocks. This removed the floor beneath every risky asset, and it removed it fastest from those that pay nothing to wait for.