As bitcoin BTC$86,850.29 bulls pin their hopes on Federal Reserve (Fed) rate cuts to drive a sustained decline in bond yields and the dollar, signals from the bond market tell a different story.

The Fed is expected to cut rates by 25 basis points to the 3.5%-3.75% range on Dec. 10, continuing the so-called easing cycle that began in September last year. Several investment banks, including Goldman Sachs, expects rates to drop to 3% next year.

An expected drop in interest rates typically weighs on Treasury bond yields and weakens the dollar index, both of which support increased risk-taking in financial markets, including cryptocurrencies. But that’s not happening of late.

The yield on the 10-year Treasury note continues to hover above 4% in familiar ranges. Moreover, it is up 50 basis points since the Fed’s first rate cut in mid-September 2024.

The stickiness in Treasury yields likely stems from ongoing fiscal debt concerns and abundant bond supply, compounded by persistent worries about sticky inflation. Adding to this upward pressure are renewed expectations for a Bank of Japan (BOJ) rate hike and the continued rise in Japanese Government Bond (JGB) yields.

The ultra-low JGB yields seen throughout the 2010s and during the COVID helped suppress borrowing costs across many advanced economies by exerting downward pressure globally.

The dollar index has also become less sensitive to rate-cut expectations, reflecting a shift in market dynamics in which these easing signals are fully priced in. Additionally, the U.S. economy’s relative robustness is likely supporting the greenback, preventing significant declines despite hopes for looser monetary policy.

The downtrend in the dollar index, which began in April this year and tracks the greenback’s value against major fiat currencies, ran out of steam near 96.000 in September. Since then, the index has bounced, knocking the 100.00 handle a couple of times.

Taken together, the resilience in bond yields and the dollar index suggests a shift in market behavior. The old, straightforward playbook – where dovish Fed signals drive yields and the dollar down, boosting risk assets like bitcoin – may not be valid anymore. Stay alert!