Bitcoin and U.S. Real Yield: Strongest Inverse Correlation Since April

Bitcoin experienced a drop of more than 10% in the past week as the yield on the 10-year inflation-indexed security in the U.S. reached its highest point since 2009.

Bitcoin (BTC) and the yield on U.S. inflation-adjusted bonds are once again diverging in their movements, demonstrating the strongest negative correlation in the last four months.

The 30-day correlation coefficient between bitcoin and the 10-year U.S. inflation-indexed security turned negative this month, shifting from +0.28 to -0.72. This level was last observed in April, according to data from the TradingView platform. A correlation coefficient of 1 signifies assets moving in tandem, while -1 indicates the opposite.

This current correlation reversal highlights the renewed impact of traditional financial elements and macroeconomic factors on the price of bitcoin. The negative correlation had broken down in July, driven by optimism about the potential approval of a spot ETF.

Treasury inflation-indexed securities are linked to inflation and are pegged to the non-seasonally adjusted U.S. city average consumer price index for urban consumers. The Bureau of Labor Statistics is responsible for publishing this data. The yield on these securities is referred to as the real or inflation-adjusted yield.

When real yields are in negative territory, investors often seek higher returns from higher-risk options such as technology stocks and cryptocurrencies. This trend was evident in the year following the market crash induced by the COVID-19 pandemic in March 2020. Conversely, positive and rising real yields encourage investment in fixed-income securities.

BTC's 30-day negative correlation with real yield is now strongest since April. (TradingView)

The yield on the 10-year U.S. inflation-indexed security surged to 1.97% in the past week, marking its highest point since February 2009.

Bitcoin, the dominant cryptocurrency by market value, saw a decline of over 10%, marking its most significant weekly drop since early November. Gold, which typically exhibits an inverse relationship with real yields, also experienced a decline of over 1%, marking its fourth consecutive weekly decrease. Additionally, the Nasdaq index recorded a drop of 2.22%.

The overall outlook for risk assets has become more uncertain due to the increase in real yields, escalating energy costs, concerns surrounding China's economy, and the unwavering commitment of major central banks to maintain higher borrowing costs.