The bond market provides a clear signal about interest rates. Bitcoin bulls should take note

The move marks a marked reversal from the start of the year, when the curve was steepening, suggesting markets were cutting rates, then said to be a tailwind for risk assets, including cryptocurrencies. That tailwind now looks like it’s weakening.

This is why the curve matters

Bonds serve as one of the channels through which monetary and fiscal policy is transmitted to markets and the economy. Thus, shifts in the bond market curve or spreads are often clearer and more reliable signals of impending policy changes than the comments of individual analysts.

The two-year yield is close to expectations for near-term Fed policy, while the 10-year yield reflects where markets see growth and inflation over the long term.

Under normal circumstances, the curve (the spread between the two) slopes upward as investors demand additional compensation or a premium to lock in their money for a longer period, pushing the 10-year yield above the two-year yield.

When the gap narrows, it usually means one of two things: Investors are looking forward to higher interest rates longer, which keeps 2-year yields higher, or they’re more pessimistic about long-term growth, which lowers 10-year yields.

The move now looks like a first, especially after the Fed’s decision on Wednesday in which the central bank left interest rates unchanged, but the broader message was tepid.