Is the super bearish steepness of the U.S. Treasury yield curve a blessing or a curse for the crypto market?

Author: NingNing, crypto analyst Source: X (original Twitter) @0xNing0x

In the last week of September and the first week of October, the U.S. Treasury yield curve experienced a super bearish steepening phenomenon.

**What is Xiongdou? **

Bear steepness refers to the phenomenon that within a certain period of time, the upward rate of U.S. long-term Treasury bond yields is greater than the upward rate of U.S. short-term Treasury bond yields, and the inversion between the two rapidly narrows.

The visual video of changes in the U.S. Treasury yield curve in 2023 produced by James Eagle shows the entire process of the bearish steepening of the U.S. Treasury yield curve. The Y-axis in the video is the Treasury bond yield, and the X-axis is the Treasury bond maturity.

**What does the appearance of Xiong Dou mean? **

Generally speaking, bearish trends often appear at the end of the old economic cycle and the early stage of the new economic cycle.

For the current macroeconomic cycle, bearish steepness means that the United States will move from a stagflation cycle to a recession cycle.

For the current monetary policy cycle, bearish steepness means the end of this round of interest rate hikes in the United States and the beginning of a new round of interest rate cuts.

For the current market trading logic, bearish steepness means that the market trading logic has shifted from trading overheating to trading recession. For example, the non-agricultural employment data released yesterday exceeded expectations and turned from negative to positive.

For the current crypto market, bearish steepness means that the market has shifted from a hedging trading logic to a risky trading logic, which is beneficial to the crypto market as a risky asset. In terms of investment portfolio allocation, the allocation will shift from BTC and stablecoins to AltCoins with popular narratives.

Opinions from all parties regarding this wave of bear steepness

Grandma Yellen: Not sure what happened, will pay close attention.

Fed Vice Chairman: This is very bad, consider ending the interest rate hike cycle.

Wall Street Institution A: A plunge in risk assets is needed to end the sell-off in long-term U.S. debt.

Wall Street Institution B: This shows that the market expects the benchmark interest rate to remain at 4% for a long time.

From the viewpoints of all parties, Xiong Dou’s appearance at this time is not welcomed by the top financial officials in the United States because:

–U.S. inflation data is still far from the 2% target.

–The U.S.'s extreme monetary tightening and extreme pressure on China have just achieved some success, but they will be forced to withdraw their troops at the expense of money.

Summarize

Looking at the three major cycles of the U.S. financial market since the beginning of the 21st century, after each bearish steep occurrence, the market will enter a stage of trading recession and expectations of interest rate cuts. Risk assets will usher in a wave of trading recovery and price rebound. However, This market will come to an abrupt end after the official interest rate cut, followed by the occurrence of black swans and the market’s collapse and meltdown.

So what about this round?

It’s hard to give a definite answer right now. This is because we don’t know whether the statistical rules based on small samples in long-term forecasts can be established. But we can build an antifragile investment portfolio based on this known information to seize the trading opportunities brought by bearish steepness.