The yield on the 10-year U.S. Treasury bond fell below 4%.
As you can see in the chart below, the profitability of U.S. government bonds has fallen to levels not seen in a month.
The yield on a government bond acts as a rate that reflects how much profit an investor will earn compared to the price at which they purchase the bond. The interest rate on bonds is fixed, but Prices on the secondary market fluctuate depending on demand.
As more investors flee to U.S. bonds or anticipate changes in monetary policy, demand for these products increases and prices rise.
And since interest rates remain constant, higher prices mean your fixed payments are spread over a larger base. So the performance is—or yield— decreases.
Government bond yields fall as interest rate cuts loom
Yields decline primarily when the market expects the Federal Reserve to cut interest rates. In this context, investors buy more bonds to secure returns before new bonds have lower interest rates. its greater demand push up prices, yield under.
In fact, the bearish move is linked to rising expectations that the Fed will cut interest rates at its next Federal Open Market Committee (FOMC) meeting, scheduled for December 10th.
According to CME Group data, there is an 86.9% chance that the market will reduce the target range to 3.50% to 3.75%, while only 13.1% expect the target range to remain at 3.75% to 4.00%.
This performance decline has several implications for the market. On the other hand, bonds lose their relative attractiveness compared to assets with higher upside potential, in favor of products considered to be riskier. On the other hand, a low interest rate and yield environment frees up liquidity. make it easier to move some of your capital to other marketssuch as stocks and digital currencies such as Bitcoin.
What does that mean for Bitcoin?
Daniel Arraez, a Venezuelan economist who specializes in Bitcoin and digital assets, says that if yields fall below 4%, liquidity will tend to flow into alternative assets such as BTC. “The appetite for riskier assets increases and people move away from safer assets,” he explains.
In a conversation with CriptoNoticias, Arees pointed out that in this context, “the liquidity created by freeing up these assets will significantly favor Bitcoin and other digital assets.”
He also emphasized that the lower yields and the eventual December rate cut are both “promoting liquidity.” This again increases investor appetite for risky assets that have the potential to generate higher returns.
However, it warns that geopolitical factors, such as tensions in the Caribbean and developing conflicts in Eastern Europe, are at play. They could change the scenario and favor the search for shelter again.
Markets continue to watch for signals on interest rate movements ahead of the Fed meeting on December 10th.
If a rate cut is confirmed in December, Bitcoin could operate in a historically favorable environment. Depends on macroeconomic and geopolitical conditions; It defines the pace of global liquidity.
(Tag translation) Bitcoin (BTC)
