Rising U.S. Treasury Yields and Their Divergent Impact on Equities and Cryptocurrencies

The U.S. 10-year Treasury yield has long served as a barometer for global financial markets, influencing everything from mortgage rates to corporate borrowing costs. Yet, in recent years, its relationship with equities and cryptocurrencies has grown increasingly complex, reflecting shifting macroeconomic sentiment and evolving investor behavior. As yields climbed to 4.16% as of September 30, 2025, the S&P 500 and Bitcoin have diverged sharply in performance, with the latter outpacing traditional assets by an extraordinary margin according to research. This divergence underscores a broader reconfiguration of asset correlations, driven by factors such as inflation expectations, liquidity dynamics, and the growing role of speculative capital in crypto markets.

Equities and the Yield-Earnings Yield Gap

Historically, the S&P 500 and U.S. Treasury yields have shared a tenuous relationship. In periods of strong economic growth, both stocks and bonds have risen in tandem, as higher yields reflect robust demand for corporate borrowing and investor optimism. However, this dynamic has reversed in recent years. Since 2022, rising Treasury yields-often spurred by inflationary pressures and Federal Reserve tightening-have frequently coincided with equity market declines. The earnings yield gap, a metric comparing the 10-year Treasury yield to the S&P 500's earnings yield, now stands at 0.69 percentage points (4.16% vs. 3.47%) according to market data. While this suggests equities are fairly valued relative to bonds, it also highlights the fragility of stock valuations in a higher-yield environment.

The disconnect stems from the dual role of Treasury yields as both a discount rate for future corporate earnings and a proxy for monetary policy. Higher yields increase borrowing costs for corporations, compressing profit margins, while also signaling tighter financial conditions that dampen risk appetite. This duality has created a scenario where rising yields, once a tailwind for equities, now act as a headwind-a shift that has left traditional asset allocators scrambling to reconcile historical correlations with current realities.

Cryptocurrencies: A New Paradigm of Decoupling

Bitcoin's relationship with Treasury yields is even more enigmatic. Over the past decade, the cryptocurrency has exhibited a near-neutral correlation (0.03) with the 10-year yield since 2013, suggesting little inherent link between the two. Yet, in the past quarter, both Bitcoin and yields have risen simultaneously-a phenomenon that defies conventional wisdom. This apparent contradiction can be explained by the interplay of macroeconomic sentiment and speculative capital flows.

When yields rise due to growth optimism-such as expectations of AI-driven productivity gains-Bitcoin can benefit from a broader risk-on environment according to market analysis. Unlike equities, which are tied to near-term earnings, Bitcoin's appeal lies in its forward-looking narrative as a store of value and a hedge against long-term inflation. This duality allows it to thrive in a higher-yield world, provided inflation remains contained and liquidity remains abundant. Indeed, Bitcoin's 402.17x return from 2015 to 2025 according to research-far outpacing the S&P 500's 236% gain over the same period according to case analysis-reflects its unique position as an asset class that transcends traditional yield-sensitive valuation models.

Macroeconomic Sentiment and the Future of Correlations

The divergent impacts of rising yields on equities and cryptocurrencies underscore a broader shift in macroeconomic sentiment. Investors are increasingly viewing Bitcoin as a complement to, rather than a substitute for, traditional assets. This shift is driven by three key factors:

1. Liquidity Dynamics: Central bank balance sheets remain expansive, providing a tailwind for speculative assets like Bitcoin even as yields rise according to market analysis.
2. Inflation Expectations: Unlike gold or real estate, Bitcoin's supply is algorithmically fixed, making it a compelling hedge against long-term inflationary pressures according to market research.
3. Risk Appetite: Growth narratives-particularly around AI and Web3-have rekindled demand for high-beta assets, even in a higher-yield environment according to market analysis.

However, these dynamics are not immune to reversal. A sharp rise in inflation or a Fed pivot toward aggressive rate hikes could reignite the traditional inverse relationship between yields and equities while also pressuring Bitcoin's dollar-denominated price.

Conclusion

The evolving relationship between U.S. Treasury yields, equities, and cryptocurrencies reflects a broader recalibration of global capital markets. While the S&P 500 remains tethered to near-term macroeconomic conditions, Bitcoin's performance is increasingly shaped by long-term narratives and speculative flows. For investors, this divergence highlights the importance of distinguishing between yield-sensitive and yield-insensitive assets in a world where traditional correlations are no longer reliable. As the Fed navigates the delicate balance between inflation control and economic growth, the interplay between these asset classes will remain a critical barometer of macroeconomic sentiment.