Rising long-term U.S. Treasury yields are intensifying a simultaneous slump in stocks and bonds, directly weighing on bitcoin.

On July 19, blockchain media outlet CryptoSlate reported that U.S. Treasuries, which once helped cushion equity declines, have recently become a factor adding downside pressure across risk assets.

At the core is a shift in the correlation between stocks and bonds. Swiss financial group UBS pointed out that the 2-month rolling correlation between the S&P 500 and the U.S. 10-year Treasury yield is -0.69, the lowest level since 1996. That suggests stocks and bonds are moving together in a rare way not seen for 30 years.

The backdrop is volatility rather than the absolute level of inflation. When slowing growth drives markets, stocks and bonds move in opposite directions, but when inflation becomes the key variable, both assets swing together. U.S. asset manager AQR analysed that this structure explains about 70 percent of the long-term fluctuations in the U.S. stock-bond correlation.

The trend has become clearer since 2022. As June inflation data softened, the U.S. consumer price index fell to 3.5 percent, but pressure from long-term yields did not ease. The U.S. 30-year Treasury yield rose above 5 percent for the first time since 2007 and hovered around 5.1 percent as of July 16. A new $25 billion 30-year auction held this year was also conducted at levels above 5 percent.

Supply-demand conditions are also turning unfavourable for long-term bonds. The U.S. fiscal deficit is expected to widen to about 6.7 percent of gross domestic product in 2036 from about 5.8 percent in 2026. At the same time, OECD member countries need to raise around $18 trillion in total this year.

Weaker overseas demand has added to the pressure. Japanese investors posted net sales of $29.6 billion of U.S. Treasuries, U.S. agency debt and municipal bonds in the first quarter. With domestic long-term yields rising in Japan and Germany, this is read as a signal that global demand that had restrained U.S. long-term yield increases over the past 20 years is weakening.

Bitcoin is feeling the effects of this rate environment more directly. Bitcoin tends to strengthen when real rates fall, the dollar weakens and financial conditions ease. When the bond market weakens, those support factors fade at the same time. Bitcoin’s recovery to $64,000 this week is also seen as stemming from a drop in short-term yields following softer inflation data.

Societe Generale presented 4.5 percent on the U.S. 10-year yield as the level where the relationship between stocks and rates turns hostile. Below that level, rising rates and rising stock prices can coexist, but above it, further rate increases raise the burden of a higher equity discount rate.

Bitcoin faces double pressure because it ranks below stocks in risk preference. When risk-free yields rise, the opportunity cost of holding bitcoin, which pays no interest, increases, and when stock markets weaken, overall risk-asset appetite contracts. For that reason, even crypto-specific positives such as regulatory progress in Washington did not sustain buying interest in markets for a prolonged period this year.

That said, the longer-term case has not weakened. Long-term yields around 5 percent, widening fiscal deficits, rising interest costs and weakening overseas demand are also conditions that increase the appeal of fixed-supply assets outside the sovereign credit system. On-chain data show $15 billion in tokenised U.S. Treasuries is currently held. That indicates funds choosing yield over scarcity are already entering the digital-asset ecosystem.

In the short term, rising long-term Treasury yields are becoming a headwind for bitcoin. It said inflation volatility must subside and slowing growth must return as the key variable for Treasuries to regain their role as a defensive asset, as in the past. Until then, bitcoin is likely to move with a heavy volatility burden in a market where it must compete with U.S. Treasuries yielding around 5 percent.