Viewpoint: The hedging relationship between US Treasuries and the stock market has failed, BTC is under dual pressure as a risk asset.
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Viewpoint: The hedging relationship between US Treasuries and the stock market has failed, BTC is under dual pressure as a risk asset.
Stocks and bonds are moving in tandem to an extent unprecedented in 30 years, while the asset that was supposed to offset stock losses has now become a source of losses instead.
Navigating Web3 tides with focused insightsAuthor: CryptoSlate / Andjela Radmilac
Compiled by: TechFlow
TechFlow Editor's Note: Over the past 20 years, the hedging relationship where Treasuries fall when stocks rise and stocks fall when Treasuries rise has completely failed. Now both are falling simultaneously, meaning the last "shock absorber" in the portfolio has disappeared, and Bitcoin, as the one at the far end of the risk asset curve, is bearing double pressure.
For the past 20 years, U.S. investors have basically enjoyed a free insurance policy: when stocks fall, Treasuries rise, and losses on one side of the portfolio are partially offset by gains on the other. This relationship was so reliable that the entire industry designed products around it, and a whole generation of asset allocators took it for granted.
But this mechanism failed 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 reading since 1996.
This means stocks and bonds are moving in sync to an extent unseen in 30 years, and the asset that was supposed to offset stock losses has now become a source of losses instead.
If Bonds Are No Longer a Safe Haven, What Is?
It is easy to say the reason for the convergence of bonds and stocks is that investors have lost confidence in U.S. government debt. But as usual, the answer is much more complex. Data tells us that investors still want the safety they get from bonds, but now they want safety without duration risk.
Duration is the sensitivity of bond prices to changes in interest rates. A 30-year U.S. Treasury nominally protects holders from default but is fully exposed to inflation and the policy rate path. Although these are two different risks, after the 2008 financial crisis, this distinction was not really important because inflation was basically in a dormant state.
Once inflation picks up, the hedge fails. The correlation between stocks and bonds depends less on the actual level of inflation and more on the volatility of inflation. It also depends on what is driving the market: news about growth, or news about inflation.
When growth dominates, stocks and bonds respond in opposite directions, because weak growth hurts stocks but benefits bonds. When inflation dominates, they move in the same direction, because higher inflation hurts both equally. AQR's research found that this explains about 70% of the long-term changes in U.S. stock-bond correlation, with similar results internationally.
Since 2022, inflation has been the dominant factor, and has lasted longer than anytime we have seen. Even cooler inflation data like the June report—pulling headline CPI to 3.5%, bringing the 30-year long-term yield back to near 5%—did not change anything, because inflation volatility is the problem, not any single reading.
The 30-year U.S. Treasury yield broke through 5% for the first time since 2007, staying above this line for most of 2026, and was near 5.1% as of July 16. Earlier this year, a new $25 billion 30-year bond auction cleared above 5%, the first time in 18 years investors have gotten such high yields on long-term bonds.
The U.S. deficit is expected to expand from about 5.8% of GDP in 2026 to 6.7% in 2036, with net interest payments as a share of the economy growing every year in between. OECD governments need to raise a total of about $18 trillion this year.
Just as supply thickens, foreign demand is thinning. Japanese investors net sold $29.6 billion of U.S. government, agency, and local debt in the first quarter, the largest net sale since 2022, because domestic yields are finally worth holding. Japan's 10-year climbed to the highest level since 1997, and Germany's 10-year bond reached a 15-year high. The global buying pressure that suppressed long-end borrowing costs for twenty years is withdrawing simultaneously in multiple places, and the term premium is the price of this withdrawal.
All this tells us that investors are buying U.S. dollars, short-term Treasury bills, and short-term bonds, which are liquid and have almost no duration risk. They are selling the long end, because the long end bears all the duration risk. This is a 180-degree turn in safe haven trading, which explains why the U.S. dollar remained strong during a week when the 30-year was sold off.
Where Does This Leave Bitcoin?
Bitcoin is now as sensitive to macro conditions as the U.S. dollar and gold.
BTC performs well when real yields fall, the U.S. dollar weakens, financial conditions loosen, and investors look for alternatives to traditional assets. Rising U.S. Treasuries bring the first three simultaneously, which is why a decline in the bond market removes three supports at once. The rebound that pulled Bitcoin back above $64,000 this week occurred precisely when a mild inflation report pulled down front-end yields.
Goldman Sachs reached a similar conclusion from another angle, warning that rising yields have compressed the equity risk premium to the point where investors holding stocks relative to risk-free assets are hardly compensated. The 10-year U.S. Treasury was above this threshold for most of 2026, easing to near 4.55% only after cooler data this week.
Bitcoin is further out on the same curve than stocks, meaning it absorbs both pressures simultaneously. Higher risk-free yields increase the opportunity cost of holding non-yielding assets. Stock declines reduce the risk appetite to fund stock positions.
Neither of these is a crypto-specific problem, so neither can be solved by crypto-specific news, which is why regulatory progress in Washington has repeatedly failed to support buying this year.
But despite the correlation, this is not a contest between Bitcoin and U.S. Treasuries. Under the inflation risk-off mechanism, they are not competing for anything. They stand on the same side of the same position, selling duration and volatility, and buying cash. Gold, long-term bonds, and Bitcoin can all fall in the same week while the U.S. dollar remains strong, telling us how much interest rate and volatility exposure anyone wants to hold currently.
The fiscal conditions producing 5% long-term yields—deficits, interest burdens, and weakening foreign buying—are precisely the conditions that 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, which is a crypto-native bet on yield rather than scarcity. The problem for 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 risk to become the dominant factor again, and the Fed to have room to loosen policy during weakness.
We have seen this combination of factors after every previous inflation shock, and so far nothing rules out it appearing after this one. However, a single month of mild inflation data is not yet that combination, although this is a data point that will eventually accumulate in that direction.
Until then, Bitcoin trades in a market where the world's deepest asset class no longer represents anyone absorbing shocks. This removes the floor beneath every risk asset, and it removes it fastest for those assets that pay nothing to wait.
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