Higher for longer

The 10-year Treasury yield broke out to 5.12% on Wednesday, a level not seen since 2007. This was the largest single-day increase in yields in over a year and the second biggest single-day increase this year in the MOVE index, the measure of bond market volatility. With the Fed having hiked rates last week, and now the whole yield curve shifting up, the bond market reflects expectations and concerns of some combination of inflation, growth, and a growing inability for the Treasury to manage the deficit. Bond markets are pricing yields higher for longer, a notable shift from a year ago, when rate cuts were priced as the base case. How does this move in offchain yields relate to onchain yields, and can the market take it? 

Looking at the spread between onchain stablecoin supply rates and T-bill yields, 2026 is on track to be the most consistently negative year on record. 96.9% of days are negative, with T-bills paying more than onchain lending, exceeding 2023's 89.0%. Stablecoin lending has underpaid bills every day since late April, putting the current period of a discount at the third-longest stretch in history, and the current gap of negative 115 basis points is now in the bottom quintile of its entire history.

When this spread sat in the bottom quintile as it does now, the average 90-day forward change was a +0.85 bps increase. The modal outcome from this current rate context is a nearly 100 bps increase over the coming 90 days. The recent rate hike and shift up in the yield curve have only grown this spread. 

Second, we can look at a recent snapshot of the funding rate term structure on Pendle’s Boros, revealing the market’s implied path of funding rates on BTC and ETH perpetual futures through year-end. Just like the Treasury yield curve, the market prices shorter-term rates at a discount to the long end, showing rates rising out in time.  

Pulling from prior research on term structures, a curve of this shape has consistently preceded increases in yields and rising spot prices over the coming 90-120 days. A look back on the path of the front-month implied rate shows this story well, where implied rates troughed at the end of April and have trended higher since. The uptrend in the front-month implied rate preceded the corresponding uptrend in BTC spot prices. In crypto, rising rates are bullish.

The move may not be done. Relative to the historical distribution, onchain rates across stablecoin lending and perps remain historically subdued. A rising yield curve in Treasurys will likely drag the onchain curves higher as well. Finally, zooming out, reading the tea leaves of BTC’s cycle theory suggests elevated and favorable returns over the next one to three years. Favorable returns can pull the cost of carry on leveraged inventory even higher. 

Should the onchain market continue to move fast and higher as it has over the past month, the need to lock in and monitor the situation will become even more pressing. Today, Blockworks launched its Unified API, combining the powerhouse databases of both Blockworks and Messari into a single API. The Unified API gives you market data across 40,000+ assets and 300+ centralized and decentralized exchanges, standardized financials and fundamentals across 400+ DeFi protocols, and comprehensive research, news, funding data, token unlocks, social sentiment, disclosures, and more. As coins and rates move higher, the Unified API gives enterprises and investors access to every data point worth monitoring, including the term structure above.

Enjoy :)  

— Luke

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