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The Treasury curve indicates that the long-expected U.S. economic slump is about to begin. The signal has historically caused risk assets to suffer.
Bitcoin (BTC) bull run indicators that crypto traders are searching for should be based on what the U.S. bond market is suggesting.
According to CoinDesk statistics, Bitcoin has increased by more than 60% this year, kicking off the pre-halving bullish phase. This week, prices increased to a nine-month high of over $29,000, mostly as a result of the recent quick repricing of interest rate expectations lower throughout the world.
Although the negative disparity between the rates on 10-year and two-year Treasury notes is starting to close, bulls should exercise caution. The difference between the two has dramatically shrunk by 80 basis points in only two weeks, and at the time of publication, it was only 30 basis points away from becoming positive.
The so-called de-inversion or re-steepening of the curve has traditionally signaled that an impending economic recession—defined as three straight quarters of declining growth—is just a few months away and foreshadowed major declines in stock markets. When investors’ minds are preoccupied with macroeconomic worries, Bitcoin, which is regarded as both a safe haven and an emerging technology, tends to move in lockstep with that trend.
“Watch for the yield curve to ‘de-invert. Now now we’re getting near. “The countdown to recession starts in earnest the day after an inversion: average of 4 months and median of 2 months,” tweeted David Rosenberg, founder and president of Rosenberg Research & Associates.
When the curve steepens, recessions occur, and equities decline, said Thomas Thornton, the inventor of Hedge Fund Telemetry, in August of last year.
The graphic analyzes the difference between the yields on 10 and 2 years using Nasdaq going back to the 1980s. Economic recessions are represented by the vertically darkened region.
Nasdaq, Wall Street’s tech-heavy equities index, has suffered every time the curve normalized or re-steeped into a recession.
If history is any indication, if the present yield curve de-inversion gains momentum, tech stocks may see pressure, pushing bitcoin down.
The yield curve is a diagram that shows how interest rates and the maturities of fixed-income securities issued by the US Treasury relate to one another. Prices and bond yields move in an inverse way. Because investors want larger remuneration for making longer-term loans, the curve is often steep.
To determine the direction of the economy, analysts regularly monitor spreads between long- and short-duration yields. Longer-duration bond yields or those at the long end primarily reflect predictions for economic growth, whilst those at the short end are more indicative of expectations for interest rates.
When a central bank raises rates quickly, as the Fed has done over the past 12 months, the curve often inverts, which causes a large increase in the two-year yield compared to the 10-year yield. The latter lags as a result of lowered growth expectations brought on by tighter monetary policy.
Markets start pricing rate decreases once the tightening’s detrimental economic effects are clear. As a result, the disparity between the two-year yield and the 10-year yield gradually de-inverts, confirming a recession.
Thus, curve inversion or the spread’s negative flip has long been considered an indication of an impending economic downturn, whereas de-inversion is a hint that the downturn has already occurred.
