Bitcoin Rebounds to $70,000 as Equities Stabilize
Bitcoin and global stock markets recovered their footing after an early-week sell-off driven by military conflict between the U.S., Israel, and Iran. The leading cryptocurrency traded above $70,000 on Friday, marking a nearly 10% gain for the week. This recovery followed a volatile period where prices dropped to approximately $65,000 over the weekend before climbing to nearly $74,000 by Wednesday. The rebound was mirrored in equity markets, where S&P 500 futures bounced to 6,840 after hitting a multi-week low of 6,718 on Tuesday. The initial risk-off move was sparked by a spike in oil prices after Iran reportedly blocked tankers in the Strait of Hormuz, but markets calmed after the U.S. took steps to secure the shipping lane.
Bond Yields Hit 4.15%, Contradicting Risk-Asset Rally
The bond market is sending a starkly different signal, expressing unease about the economic outlook. The yield on the 10-year U.S. Treasury note rose for four consecutive days, climbing from 3.93% to 4.15%. Bond prices move inversely to yields, so the rise indicates investors are selling government debt. The two-year yield, which is highly sensitive to monetary policy expectations, also increased from 3.37% to nearly 3.60%. This upward move in yields suggests traders are preparing for renewed inflation pressures, fueled by the potential for a prolonged energy price shock and a resilient U.S. economy, where recent data showed the ISM services index at 56.1 and a stronger-than-expected ADP payrolls report of 63,000 job creations.
Fed Rate Cut Odds Tumble Below 50%
The tension between stabilizing risk assets and rising bond yields is forcing a rapid repricing of Federal Reserve policy expectations. According to CME Fed funds futures, investors now see less than a 50% probability of two 25-basis-point rate cuts this year, a sharp decline from the nearly 80% chance priced in before the geopolitical flare-up. The bond market's behavior points to a more hawkish path for the Fed as it confronts new inflationary risks.
The rates market is revealing the tension in this rally. The conflict between a resilient economy and an inflationary energy shock is historically the kind of setup that keeps the Fed frozen for longer.
— Bryan Tan, Trader at Wintermute
Analysts note that the full impact of oil price shocks can take weeks to filter through the economy, suggesting yields could remain elevated and cap further gains in both stocks and cryptocurrencies. Market participants are now focused on the upcoming nonfarm payrolls report, as a strong print could further diminish hopes for rate cuts and introduce fresh market volatility.
