December 3 – Bitcoin bulls have been banking on Federal Reserve rate cuts to drive bond yields lower and weaken the U.S. dollar, but recent market signals suggest reality may differ from expectations. Despite hopes that monetary easing would boost risk assets, bond market behavior indicates challenges to bullish optimism.

Investors anticipate the Fed will cut rates by 25 basis points to 3.5%-3.75% at its December 10 meeting, continuing the easing cycle that began last September. Major banks including Goldman Sachs project rates could fall to 3% next year. Typically, lower rates would pressure Treasury yields and the dollar, supporting risk assets like cryptocurrencies. However, the 10-year Treasury yield remains stubbornly above 4%, having risen 50 basis points since the first 2024 rate cut, showing market moves aren't following the expected script.

Analysts note Treasury yields remain elevated due to persistent fiscal debt concerns, robust bond supply, and sticky inflation expectations. As government debt rises, increased bond issuance without matching investor demand could push yields higher and pressure prices. Potential Bank of Japan rate hikes and rising Japanese government bond yields also contribute to global borrowing cost pressures.

The dollar index's sensitivity to rate-cut expectations has diminished, reflecting shifting dynamics. Relatively strong U.S. economic performance has provided underlying support, preventing significant dollar depreciation despite easing expectations. After declining from April to September (bottoming near 96), the dollar index has rebounded multiple times, even breaching the 100 level.

These resilient bond yields and dollar movements signal changing market behavior. The traditional playbook where Fed dovishness automatically weakened yields and the dollar to boost risk assets like Bitcoin may no longer hold. Investors should remain vigilant, focusing on actual market signals rather than relying solely on conventional rate-cut expectation strategies.