Bitcoin’s rally faces a potential headwind from rising long-term Treasury yields, even as markets anticipate a September 17 Federal Reserve rate cut. While easing is expected to lower short-term rates and boost risk assets, longer-duration bonds may remain elevated, creating a complex backdrop for BTC and other speculative assets.

The Fed is widely expected to cut the benchmark interest rate by 25 basis points next week, bringing the target range to 4.00%-4.25%. Futures markets currently price in additional easing over the next year, projecting rates near 3% by the end of 2026.

Bitcoin bulls hope these cuts will depress Treasury yields and stimulate risk-taking, but fiscal and inflationary pressures could prevent a sustained drop in long-term yields.

Debt Supply Pressure
The U.S. government plans to issue more Treasury bills and notes to finance recently approved extended tax cuts and increased defense spending. The Congressional Budget Office estimates these policies could add over $2.4 trillion to deficits over the next decade, raising the total debt by nearly $3 trillion—or roughly $5 trillion if the measures become permanent.

The resulting increase in bond supply may push prices down and yields up, particularly at the long end of the curve. Analysts at T. Rowe Price note that “the U.S. Treasury’s eventual move to issue more notes and bonds will pressure longer-term yields higher.”

Investors are already demanding higher yields on 10-year and longer-duration Treasuries to compensate for fiscal and inflation risks. Kathy Jones, managing director at the Schwab Center for Financial Research, observes that “investors are demanding a higher yield for long-term Treasuries to compensate for the risk of inflation and/or depreciation of the dollar as a consequence of high debt levels.”

Inflation Remains a Factor
Although the labor market has weakened, inflation has recently risen. Year-over-year CPI climbed to 2.9% in August, the highest since January, signaling that inflation remains sticky and complicating the case for aggressive rate cuts.

Yields Already Reflect Easing
The 10-year Treasury yield fell to 4% last week, down over 60 basis points from its May high of 4.62%, likely reflecting expectations of Fed easing. However, Padhraic Garvey, CFA at ING, cautions that the decline may overshoot: “Higher inflation prints in the coming months will likely cause long-end yields some issues, requiring a significant adjustment.”

Lessons from 2024
A similar pattern occurred last year. The 10-year yield dropped more than 100 basis points ahead of the September 2024 rate cut, only to rebound to 4.57% by year-end and peak at 4.80% in January 2025, driven by inflation, fiscal concerns, and economic resilience. Analysts suggest a repeat scenario could unfold this year.

Implications for Bitcoin
While BTC surged from $70,000 to over $100,000 between October and December 2024 despite rising long-term yields, this rally was fueled by pro-crypto regulatory sentiment and corporate adoption. With those factors now weaker, rising long-term Treasury yields could weigh on bitcoin’s price, even if the short-term Fed cuts support risk appetite.

Investors should therefore weigh the dual forces of anticipated easing and fiscal-driven long-term yield pressures when assessing bitcoin’s near-term trajectory.