Before the release of the CPI in the United States, what really took off was the interest rate trading. In the CME "Fed Watch," the probability of a 25bp rate hike in September has been pushed to 71.3% by the market, leaving only 28.8% for maintaining the current rate, almost equivalent to an early announcement of a new tightening; meanwhile, the yield on the 10-year U.S. Treasury bond jumped to 4.943% on the eve of the data release, setting a new high for 2023 and approaching the psychological barrier of 5%. More concerning for bulls is that the U.S. Treasury, led by Secretary Yellen, initiated a buyback program, but the actual buyback scale for 10 to 20-year bonds is only $5.187 billion, below the previously announced upper limit of $6 billion, and the unfilled purchases are interpreted by the bond market as continued selling pressure on the long end. The interest rate path is being repriced, long-term yields are approaching 5%, seeming like a pure bond story, but for global funds, this is a moment about the re-elevation of the "risk-free rate": when U.S. dollar rates and Treasury yields rise together, all high-volatility assets including BTC and ETH must accept the reality of a cooling risk appetite, a rebalancing of funds towards interest-bearing assets, and how the entire rate hike trade will rewrite the pricing structure of the cryptocurrency market in the coming weeks.
Hiking expectations rise: CME pricing points to a tightening in September
As bond market yields approach 5%, the CME "Fed Watch" script in traders' minds has become more concrete: as of the latest data, the probability of a 25bp rate hike in September has increased to 71.3%, with only 28.8% remaining for keeping rates unchanged. More critically, October is no longer seen as a "safe window," with the probability of maintaining rates unchanged in October at only 17.6%, while the scenario of a cumulative 25bp hike is priced at 54.8%, and a cumulative 50bp hike is at 27.6%. The meaning of these numbers is straightforward—the market is no longer hesitating around "whether to hike again," but is trading on the path of "at least once, perhaps twice," raising the top of the Fed's rate curve, while also extending the time spent at high levels.
As rate hike expectations are quantified and written into futures prices, the global risk-free rate anchor is pushed higher, and the return requirements for all U.S. dollar assets shift upwards synchronously, passively constricting the valuation space for high-volatility assets. Under the narrative of "higher for longer," leveraged funds that previously took long positions in BTC and ETH due to low-cost financing are now confronted with more expensive U.S. dollar rates and Treasury yields near 5%, which demand higher compensation for every unit of risk; likewise, cross-market arbitrage funds must now seek a significantly elevated annualized premium when weighing Treasury yield spreads against crypto returns, and any positions failing to meet the new thresholds will be reduced or liquidated. The seemingly cold interest rate hike probabilities on the CME are actually rewriting the risk-return baseline for BTC and ETH: only by offering sufficiently high expected returns can they continue to compete with dollar rates of 4%-5%.
10-Year U.S. Treasury Approaching 5%: Repricing Storm for Long-End Rates
While CME's rate hike probabilities are continuously rising, it is really the bond traders' keyboards that are sprinting ahead. Before the U.S. CPI was released, the yield on the 10-year Treasury bond surged as buying pressure gave way to selling, quickly spiking and touching 4.943% intraday, setting a new high since 2023 and rapidly approaching the 5% psychological barrier that has been repeatedly marked by the market. The repricing of long-end rates reflects concerns over "inflation resilience + further policy tightening": if future nominal rates are to be maintained on a higher platform for longer, then the discount rates for all long-duration assets need to be recalculated. The bond market originally hoped for a "backstop action" from the Treasury—under Secretary Yellen's leadership—expanding the scale of buybacks for 10-20 year Treasuries, which could have reached up to $6 billion, but the final transaction was only $5.187 billion, and the unfilled purchases were viewed by traders as a signal: the official sector is not in a hurry to absorb these risks, and the selling pressure on the long end can continue to test the market's true equilibrium rates.
For global assets, the approaching 5% yield on the 10-year U.S. Treasury is not an abstract number, but a new dividing line for yields. High-duration tech stocks feel the chill first, as future cash flow discount factors are adjusted upwards, and valuation elasticity begins to contract; the crypto market is then reassessed under the higher discount rates, where BTC and ETH, as "non-cash-flow high-volatility assets," need to present higher expected price increases to convince funds to continue bearing volatility risks. When Treasury bonds and U.S. dollars provide close to 5% risk-free coupon rates, the rebalancing pressure on multi-asset portfolio managers sharply increases: some funds that originally remained on the chain to earn structural yields or take advantage of market trends are being relocated back to Treasuries and short-term rates, wherein leverage is reduced, and exposure is contracted, leaving capital in the crypto market more discerning, only willing to allocate risk budgets to trading structures genuinely capable of catalyzing market movements. In this repricing storm, dominated by long-end rates, BTC and ETH face not just price volatility, but a deeper challenge: the relative attractiveness of their entire asset class in the global yield spectrum is being systematically downgraded.
Fiscal buybacks fall short of expectations, worsen Treasury bond selling pressure
Against the backdrop of persistent repricing in long-end yields, the market initially pinned its hopes on "backstopping" from the fiscal side. Under Secretary Yellen's leadership, the U.S. Treasury launched an expanded bond buyback program, targeting the segment of 10 to 20 years where selling pressure is most concentrated, with the intention of repurchasing some outstanding bonds, providing a policy buy-side reference for long-term Treasuries to ease the pace of selling and suppress yields from continuing to rise uncontrollably. However, the actual outcomes quickly cooled traders' optimism—this buyback scale was only $5.187 billion, while the previously disclosed upper limit was $6 billion, and the Treasury did not fill its quota, leaving the market with the reality of limited relief rather than a "full throttle" signal.
On a narrative level, the detail of "not fully subscribed" was rapidly amplified, juxtaposed with the yield hitting new highs, evolving into a more aggressive story: the long-term selling pressure on Treasuries has not peaked, and the fiscal side neither intends nor is able to absorb too much market risk. The result is that long-end yields remain high even after the buyback, with scenes of the 10-year yield approaching 5% continually appearing on macro traders' screens, and Yellen's buyback attempt not only failed to change the situation dominated by Fed pricing at the front of the curve and selling pressure at the back, but was instead viewed as evidence of "higher rates for longer." For crypto assets, this means that the chips in the interest rate competition shift further toward Treasuries: on the balance sheets of on-chain and off-chain funding, the "opportunity cost" of holding high-volatility assets like BTC and ETH is increasingly replaced by Treasuries that can lock in nearly 5% returns. The disappointment of the fiscal buybacks, coupled with persistent high long-end yields, together form a key macro constraint that suppresses crypto risk appetite and forces capital to continue flowing from on-chain assets to interest-bearing assets.
High rates and high yields impact the liquidity of BTC/ETH
As the yield on the 10-year U.S. Treasury rapidly rises to 4.943%, nearing the 5% psychological barrier, and the CME "Fed Watch" prices a 25bp hike in September as a high probability event, global U.S. dollar funds face an unprecedentedly specific dilemma: on one side are the close to 5% Treasury yields and high short-term U.S. dollar rates that appear to be maintained for a while, while on the other side are BTC and ETH, which need to endure high volatility and lack clear catalysts for short-term increases. For institutions allocating U.S. dollar assets in the U.S. and globally, most CeFi and DeFi U.S. dollar income products are starting to lose their spread advantage, as that line for "risk-free rate" on their balance sheets shifts from abstract assumptions to concrete U.S. Treasuries and short-term bonds, compressing their motivation to chase additional percentage gains on-chain.
In such a rate environment, changes in capital behavior often exhibit path dependence: historical experience shows that in the phase of rising risk-free rates, the crypto market often first experiences a cooling of leverage, a decline in perpetual contract funding rates, and then extends to a contraction in spot transaction volume. In this round, on the eve of significant inflation data and the interest rate meeting, this defensive adjustment has already become evident—some funds are withdrawing from BTC and ETH spot and perpetual positions, flowing back into U.S. dollar cash and short-term Treasuries, while others, originally stationed in on-chain yield strategies, begin to compare the "certainty" of off-chain interest rate products with the "high volatility" of the crypto market, thereby reducing their risk exposure. The result is a reshaping of the volatility and liquidity structure of BTC and ETH: prices may find it more challenging to gain a smooth upward trend in the short term, but every minor adjustment in macro expectations is more likely to amplify directional volatility on a thinner order book, and whether this wave of rising rates can be offset by new incremental capital will determine if BTC and ETH maintain a defensive consolidation or are forced into a deeper round of deleveraging.
On the eve of key data: How the crypto market positions itself in the inflation and rate hike gamble
As we reach the tail end of this volatility, this impact has effectively rewritten three core macro variables: first, the expectations for the rate hike path have been significantly raised, with the CME "Fed Watch" showing that a 25bp rate hike in September is now priced as a high-probability event, and the probability of a cumulative 50bp hike by October is also priced into trading; second, long-end yields have made their repricing ahead of the CPI release, with the yield on the 10-year Treasury reaching 4.943%, approaching the 5% psychological barrier; third, the Treasury's bond buyback under Secretary Yellen is only $5.187 billion and did not fill the $6 billion upper limit, failing to provide the expected "long-term interest rate safety valve." These three clues collectively elevate the global risk-free rate anchor, creating real yield competition for BTC and ETH, prompting funds to dynamically rebalance among Treasuries, cash, and crypto assets—in light of significant data and interest rate meetings, typical operations involve reducing net exposure and leverage, awaiting clearer inflation and policy direction before deciding whether to rebuild risk positions. Moving forward, the specific reading of the U.S. CPI, the Fed meeting's final decision on the pace of rate hikes, and whether the 10-year Treasury formally breaks through 5% will become three critical anchors to observe whether capital continues to concentrate in interest-bearing assets or takes on crypto risks, and will largely determine whether BTC and ETH maintain defensive consolidation or are forced into a new round of deleveraging.
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