Fed Faces Tough Choice as Treasury Yields Soar to 24-Year Highs

The Federal Reserve may be forced to choose between its inflation mandate and its responsibility to maintain the stability of government bond markets, according to Stephen Coltman, Head of Macro at 21Shares.

The Treasury yields have hit 24-year highs, with the 10-year Treasury yield climbing to 5.34% and the 30-year Treasury note rising to a 24-year high of 5.63%.

This has led to a growing market tension, as the Fed hikes rates while the Treasury simultaneously announces bond purchases to push yields lower.

Coltman said that if yields continue to rise, the Fed would be 'forced to choose' between its inflation mandate and its responsibility to maintain 'orderly functioning' of the debt markets.

The 'Debasement Trade' is a bet that the central bank will end up tolerating higher inflation over the long term to accommodate structural growth in government spending and rising debt levels.

Bitcoin has been negatively correlated with Treasury yields and the U.S. Dollar Index, and some investors are still asking what they want to own when governments carry enormous debt loads and the purchasing power of fiat currency is under pressure.