Higher Interest Rates Reshape Markets, Crypto Shows Relative Strength

Financial markets are adjusting to a prolonged period of higher interest rates and yields. Central banks in large economies have started tightening monetary policy due to rising inflation, with the yield on 10-year U.S. Treasuries reaching nearly 5%. Long-dated yields in the U.K., France, and Australia also hover around 5%.

The current rise in yields is not solely attributed to expectations of the Fed's decision but also reflects persistent inflationary pressure and a higher cost of capital. This has led to increased sensitivity towards capital expenditures on artificial intelligence (CAPEX), which were previously driving the investment boom.

As real economic growth remains strong, driven by tech booms and geopolitical tensions, investors are now focusing on profitability, free cash flow, and returns on capital. The market is shifting from a period of easy money to one where investments must prove their worth.