US Treasury Yields Are Soaring, But What Does This Mean for Markets and Crypto?

The 10-year US Treasury yield recently hit a 12-year high, but what impact might that have on the investor sentiment towards stocks and cryptocurrencies?

Market analysis

In all markets and tradable currencies, US Treasuries (government bonds) have significant influence. In finance, any measure of risk is relative, which means that if one insures a house, the maximum liability is fixed in a monetary form.

Similarly, if a loan is taken from a bank, the creditor must calculate the probability that the money will not be returned and the risk that the amount will be devalued by inflation.

In a worst-case scenario, imagine what would happen to the costs associated with issuing debt if the US government temporarily suspended payments to specific regions or countries. Currently, more than $7.6 trillion in bonds are held by foreign entities, and several banks and governments depend on these cash flows.

The potential cascading effect of countries and financial institutions would have an immediate impact on their ability to settle imports and exports, leading to further carnage in the loan markets as each participant rushes to reduce their exposure to the risk.

There is over $24 trillion in US Treasuries held by the general public, so participants generally assume that the lowest risk in existence is a government-backed debt security. Treasury yield is nominal, so watch out for inflation

The yield widely covered by the media is not what professional investors trade, because each bond has its own price. However, based on the maturity of the contract, traders can calculate the equivalent annualized return, making it easier for the general public to understand the benefit of holding bonds. For example, buying a 90% 10-year US Treasury bond entices the owner with an equivalent yield of 4% until the contract matures.

States US 10-year government bond yield. Source: TradingView

If the investor believes inflation will not be contained any time soon, these participants tend to demand a higher yield when trading the bond at 10 year. On the other hand, if other governments run the risk of becoming insolvent or hyperinflating...