S&P 500 and Nasdaq slide as Treasury yields climb, dimming rate cut hopes

The S&P 500 dropped 0.79% to close at 7,515.34 on July 13, while the Nasdaq Composite took a harder hit, falling 1.55% to 25,873.18. The culprit: Treasury yields climbing fast enough to make growth stocks look expensive and safe havens look attractive.

The 10-year Treasury yield rose more than 4 basis points to 4.614%, and the 2-year yield jumped over 6 basis points to 4.271%. When you can earn nearly 4.6% on a government bond with essentially zero risk, the bar for owning volatile assets gets a lot higher.

What’s driving yields higher

Oil prices surged past $75 per barrel, driven by escalating geopolitical tensions between the US and Iran. The Strait of Hormuz, a narrow waterway through which roughly a fifth of the world’s oil supply passes, has become a flashpoint again. Higher oil means higher energy costs, which feeds directly into inflation readings.

That inflation pressure is making it increasingly difficult for the Federal Reserve to justify rate cuts anytime soon. The 2-year yield climbing faster than the 10-year is particularly telling. The 2-year note is the market’s best real-time gauge of where traders think the Fed is heading. A 6-basis-point jump in a single session suggests that expectations for monetary policy relief are being actively repriced.

Why crypto investors should care about bond yields

When the 10-year yield pushes toward 4.6%, it creates a higher risk-free rate — the baseline return you can get without taking any risk goes up, which means every risky asset needs to offer a more compelling reason to hold it. This dynamic crushed crypto markets in 2022 when rates were rising aggressively.

The fact that no digital assets were even part of the conversation during this equity selloff suggests that crypto is sitting in a holding pattern, watching traditional markets for directional cues.

The Nasdaq’s 1.55% decline is especially relevant because it’s the index most closely correlated with crypto performance. Growth and tech stocks share the same sensitivity to discount rates that digital assets do.

What this means for investors

For crypto-native investors, the key metric to watch is the 10-year real yield, which is the nominal yield minus inflation expectations. When real yields rise, they compress the valuation multiples on every asset that doesn’t generate cash flow. Bitcoin, which produces no yield of its own, becomes a harder sell to institutional allocators who can park money in Treasuries earning 4.6%.

With Treasury yields this attractive, DeFi protocols offering comparable or lower yields on stablecoin lending suddenly look less appealing on a risk-adjusted basis. Why take smart contract risk for 4% when you can get 4.6% from Uncle Sam?

Traders should watch the 4.65% level on the 10-year yield closely. The 2-year yield at 4.271% suggests the market still sees the Fed holding steady for longer than many had hoped, and that patience will be tested if oil prices remain elevated and inflation data comes in hot.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.