Real Bond Yields and Bitcoin: How They Are Linked and Where to Track Them

Real Bond Yields and Bitcoin: How They Are Linked and Where to Track Them

Real bond yields are one of the most useful macro numbers for a crypto trader. They show how much an investor earns on government bonds above inflation.

After the US midterm elections, James Butterfill of CoinShares pointed out that for bitcoin, real yields, dollar liquidity and ETP flows matter more than politics. Let's look at what this indicator is and how to read it.

What real yield is in plain words

The nominal yield is what a bond pays on paper. The real yield is what is left after adjusting for inflation.

Roughly speaking, if a bond yields 4.3% a year and the market expects inflation of 2.4%, the real yield is about 1.9%. That is the number investors compare with other assets.

How to calculate real yield: TIPS and inflation expectations

There are two ways. The first is to subtract market inflation expectations, known as the breakeven, from the nominal yield.

The second is to look at TIPS, US inflation-protected bonds. Their principal is indexed to inflation, so the TIPS yield is the real yield.

The 10-year maturity is the one most often watched. It is closest to the horizon over which funds compare bonds with stocks, gold and crypto.

Why real yields affect bitcoin

Bitcoin pays no interest. When bonds offer a meaningful return above inflation, holding an asset with no yield becomes more costly.

That is why rising real yields usually weigh on risk assets, while falling ones help them. Money looks for the best risk-adjusted return, and the risk-free rate sets the bar for everyone.

In our view, this link works over weeks and months, not hours. On any given day, bitcoin's price is moved by fund flows, liquidations and news.

How real yields relate to dollar liquidity

A high real rate usually goes hand in hand with a strong dollar and tighter liquidity. Borrowing is expensive, and there is less spare money for risky bets.

When real yields fall, the dollar often weakens and liquidity grows. We believe these are the periods when crypto gets the most favorable backdrop.

• real yields rise: the dollar strengthens, risk assets come under pressure
• real yields fall: the dollar weakens, crypto has more room to grow
• a sharp jump in yields: volatility rises across all markets at once
• yields stay flat: fund flows and crypto's own factors come to the fore

Where to track real bond yields

The most convenient free source is FRED, the database of the Federal Reserve Bank of St. Louis. It has TIPS yield series for different maturities and market inflation expectations, with charts and history.

The same yields are shown by financial terminals and bond quote websites. From what we see, it is enough for a crypto trader to check the 10-year real yield and its weekly change once a day.

How an arbitrageur can use real yields

An arbitrageur does not trade bonds, but real yields set the backdrop for their trades. They affect how much traders are willing to pay for leverage.

Funding

When real rates fall and the market is in risk-on mode, there are more leveraged longs and funding on perps rises. When rates go up, appetite for leverage drops and funding rates are usually more modest.

Basis

The basis between futures and spot competes with the risk-free rate. If the annualized basis is below bond yields, a basis trade has a harder time attracting money.

A hypothetical example

The example is hypothetical. Over a month the 10-year real yield rose from 1.6% to 2.1%, while the annualized basis on a quarterly bitcoin future shrank from 7.3% to 4.8%.

For an arbitrageur, this is a signal to recalculate the trade. If fees and transfer costs eat about 1.2% annualized, the net basis return ends up closer to bonds than one would like.

Our tools

The macro backdrop changes funding and basis on all exchanges, but not equally, and comparing rates is easier in one window. Our arbitrage screener keeps dozens of venues in one window, refreshes quotes every second and shows each gap together with the volume actually behind it. The spread calculator helps you check what survives fees, network costs and slippage at your size. The bot is fully manual. It never connects to your exchange API keys.

To test the tools on a live market, ArbitrageScanner offers one day of free access to the whole ecosystem.

FAQ (Frequently Asked Questions)

1. What is the real yield on bonds?

It is a bond's yield minus expected inflation. It shows how much an investor earns above rising prices.

2. How do real yields affect bitcoin?

Rising real yields usually weigh on bitcoin because holding an asset with no yield becomes more costly. Falling yields generally help risk assets.

3. What are TIPS?

US Treasury inflation-protected securities. Their yield is what is treated as the real yield.

4. Where can I check US real bond yields?

For free on FRED, the database of the St. Louis Fed. It has TIPS yields and inflation expectations with history.

5. How are real yields related to funding?

When real rates are low, traders take on leverage more readily and funding on perps rises. When they are high, appetite for leverage falls.

6. How do real yields affect the futures basis?

The basis competes with the risk-free rate. If the annualized basis is below bond yields, a basis trade loses its appeal.

Conclusion

The real bond yield is the price of money adjusted for inflation. When it rises, risk assets and bitcoin have a harder time; when it falls, the backdrop for crypto improves.

It is useful for an arbitrageur to keep it as a backdrop for funding and basis decisions. Checking the 10-year TIPS yield once a day and comparing it with the annualized rates of your trades is enough.

IMPORTANT! We are software developers. We do not give recommendations or promises of earnings and we do not advise you to invest your money anywhere. Our software is fully manual, all your money stays under your own control. We show examples of how our clients have earned on arbitrage in the past, but we do not advise repeating those actions one to one. Your earnings depend solely on your own actions and on market factors.