Panic chart pack: there will be blood
Everything is on fire. Protect ya neck. Pour out a little liquor.
How’s everybody doing out there? Nervous? Scared AF? I don’t blame you. It’s ugly out there, and I’m sure you’re clamoring for answers. As we settle into our Wednesday/Friday posting schedule here at The Bitcoin Layer and prepare for the launch of our new education-forward YouTube channel (Tuesday/Thursday videos begin on June 21st), timely analysis is required on this Sunday evening. Strap in.
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Rising Treasury yields are putting pressure on every single asset class.
The Fed’s runway to hike rates has been extended yet again.
Equities look terrible.
Bitcoin nears our “Fair Value Confluence Price” as you’re probably wondering where the price bottoms.
Ethereum death watch accelerates.
Note: today’s charts are all monthly candles, as we zoom way out to gather our senses amidst markets in turmoil. Additionally, markets are moving all over the place this evening, so please mind that these charts were struck at approximately 7pm Pacific.
Higher yields are choking risk assets, no signs of a top
On Friday, we received yet another 40-year high inflation print, as the “slowing inflation” narrative has yet to find any footing. We are going to focus on charts, levels, and price action in this post—our first look is at the 2-year Treasury yield.
The 2-year yield is a market representation of where traders believe the Fed’s policy rate will be in about two years. Last month, 2s looked like they were topping and had a red monthly candle for the first time since last year. On Friday, however, all of that yield decline was undone in a couple of hours as sky-high inflation kept the Fed’s 50-basis-point-per-meeting hiking schedule on course and even tempted front-end traders to dare the Fed on 75 basis point hikes for the rest of the summer. After this Wednesday’s hike, the Fed will still have another 200 basis points of runway to hike given the spot yield of 2s.
This yield is now materially higher than it was during the previous hiking cycle. Keep in mind that the Fed Funds rate has seen lower highs every single hiking cycle for over two decades (6.5% in 2000, 5.25% in 2007, 2.5% in 2019). We recently discussed the relationship between 2s and Fed Funds, but in summary, 2s leads Fed Funds, and a break of the previous cycle high in 2s could mean a break of the previous cycle high in Fed Funds.
Next, let’s travel out the yield curve to the 10-year point.