US Treasury Yields Climb as TIPS Undermine Inflation Narrative

US Treasury yields have been rising for months, and the market’s latest move has pushed 30-year rates to their highest level since 2007. While mainstream coverage has largely pinned the sell-off on inflation concerns tied to higher energy prices, analysis of inflation-protected bonds suggests the more important driver is the climb in real yields—an outcome that can be especially challenging for assets that don’t pay investors along the way, including Bitcoin.

The shift is also changing the trade-offs between traditional fixed-income strategies and crypto exposure. According to Glassnode’s latest research, government bond investments have become more profitable than certain cash-and-carry style trades in crypto markets for the first time since 2019.

Key takeaways

• 30-year Treasury yields have surged to the highest levels since 2007 amid a multi-month sell-off in government debt.
• Market pricing for a September rate hike is elevated, with CME FedWatch placing the probability at 63%.
• Treasury Inflation-Protected Securities point to falling five-year inflation expectations (around 2.2% and trending down since May), even as nominal yields rise.
• Data indicates the nominal yield increase is driven more by rising real yields than by higher inflation expectations—typically a headwind for non-yielding assets.
• Multiple potential transmission channels to crypto exist, but the direction is generally bearish if higher real rates reflect weaker growth or tighter liquidity.

Why Treasuries are selling off again

After US government debt yields hit local lows in early March, Treasuries have entered a prolonged period of selling. Following the most recent FOMC meeting, 30-year Treasury yields made headlines by reaching levels not seen since 2007. Within the same window, the two-year yield climbed by 76 basis points, and markets increasingly price another Fed move: a September rate hike is currently weighted at 63% according to CME FedWatch.

The higher the yield environment becomes, the more investors compare alternatives across asset classes. Glassnode’s research—published in its “The Week Onchain” series—notes that, for the first time since 2019, returns from government bond investments have become more attractive than cash-and-carry style trades involving crypto futures.

Inflation fears are loud, but TIPS tell a different story

Many observers have connected the bond sell-off to rising commodity and energy prices. The timing overlaps with the start of the Iran war and the resulting closure of the Strait of Hormuz, and the daily moves in oil and interest rates have tracked each other since March. In that framing, stronger crude prices feed directly into inflation expectations, pushing yields higher.

However, inflation-protected securities complicate that narrative. Treasury Inflation-Protected Securities (TIPS) are designed so their principal—and therefore their coupon payments—are adjusted to reflect the Consumer Price Index. Because TIPS exist alongside regular Treasuries of similar maturity, comparing their yields allows investors to estimate the market’s implied inflation path through the breakeven rate.

According to data referenced from FRED, the five-year breakeven inflation rate has dropped sharply since May and is currently around 2.2%. That figure suggests the market expects the Fed to achieve its 2% inflation target over the medium term. More importantly, the breakeven rate has been moving in the opposite direction to nominal Treasury yields: while nominal yields rise, the inflation component implied by TIPS declines.

In the dataset cited, a 33-basis-point increase in the five-year nominal yield is paired with an 84-basis-point rise in the real yield, partially offset by a 51-basis-point decline in expected inflation. In other words, the market’s “real yield” story is changing—and it is the real rate that appears to be doing the heavy lifting.

What higher real yields can mean for Bitcoin and other non-yielding assets

In general, when real returns on traditional investments rise—after adjusting for CPI—investors may prefer assets that offer carry rather than those that do not. Bitcoin is typically treated as a non-yielding asset in this framework, so the direction of travel in real rates can matter.

Still, the impact on crypto depends on why real yields are moving higher. The analysis outlines several mechanisms that can coexist, with different implications for liquidity and demand.

1) FX or reserve liquidation pressures: unclear for crypto

One possible explanation involves global currency and funding dynamics. Higher oil prices can worsen trade balances for energy importers in Asia because oil is priced and settled in US dollars. That can lead to pressure in offshore US-dollar funding markets and force central banks to intervene to defend exchange rates.

The discussion cites Cointelegraph coverage of yen defense and Bloomberg reporting on interventions involving the Philippine peso and Indian rupee. It also notes that these interventions can be funded by selling US Treasury reserves, which can increase upward pressure on yields. In this scenario, the bond sell-off may reflect external funding strain rather than a direct verdict on the dollar or inflation.

As a result, the direct implications for crypto are not automatic: if the driver is more about FX mechanics than about deteriorating growth expectations, crypto’s reaction could be muted or different from the classic “rates up, risk assets down” story.

2) Demand destruction and recession risk: bearish setup

Another pathway is growth damage. If an oil shock persists long enough, the argument goes, it stops being merely inflationary and begins to suppress economic output. Neuberger Berman’s fixed-income outlook—referenced in the analysis—suggests investors may be underpricing how sustained energy costs could hit output.

That matters because a recessionary environment typically tightens liquidity. In such conditions, both equities and Bitcoin can face pressure as credit conditions worsen and risk appetite declines. The analysis also points to the expectation of widening credit spreads as a sign that credit could deteriorate.

It further references Cointelegraph reporting on early signals of stress, connected to rising costs to insure AI-linked debt amid an Asian semiconductor pullback. While that example is specific, it underscores the broader theme: if credit markets begin to price higher risk, non-yielding and speculative assets often struggle.

3) Capital competition from AI issuance: another headwind

A third channel is that higher real rates may be tied to expected growth and capital demand—especially from the AI sector. The analysis argues that as corporate bond issuance, including from major AI-related players, becomes unusually large, government issuance competes more directly for investor capital.

Goldman Sachs Research is cited projecting roughly $755 billion of AI capex in 2026 and about $920 billion in 2027. UBS is also cited as raising its 2026 investment-grade issuance forecast to $1.8 trillion, with technology supply lifted to $360 billion based on hyperscaler guidance. In that environment, investors’ willingness to allocate incremental capital to crypto could be constrained, not necessarily because crypto is “bad,” but because the fundraising pipeline elsewhere is intense.

What to watch next

For crypto investors, the critical question is whether TIPS-implied breakevens stabilize while real yields remain elevated—or whether the market reinterprets the move as a growth scare. Watching the evolution of TIPS breakevens and real-yield dynamics, alongside credit conditions such as spreads, may provide the clearest signal on whether this bond sell-off turns into a sustained liquidity headwind or fades as a temporary funding/energy-driven episode.