Will the Long End Rejoin the Fed, and Why It Matters?
Friday’s closer ended on a split: the Fed’s next rate hike had gone from likely to unlikely, and long-term interest rates kept climbing anyway. Four things could settle it: Monday’s survey of how busy the services side of the economy is, Wednesday’s minutes from the Fed’s last meeting, Thursday’s Treasury buyback of older long-term bonds, and Friday’s survey of what consumers expect prices to do. Monday’s survey gave a mixed first answer: services growth slowed, but prices paid hit their highest in more than four years. Section 02 explains why the gap between short-term and long-term rates matters.
Hike odds crept back up, and long-term rates climbed back toward their highs.
Friday’s closer left three things open. Long-term rates stayed near their highest in more than two decades, and hike odds, while still low, crept back up. Bitcoin funds ended the week with their biggest buying day, while Ethereum funds sold for a fourth straight day. The squeeze the Pulse flagged played out, and the nearest short now sits well outside the danger zone, Section 04 has the detail.
Bitcoin and Ethereum are a little higher after a Sunday night run that faded by Monday morning. Stocks edged higher and the dollar firmed alongside long-term rates. Gold slipped, silver climbed, and Zcash kept sliding. Oil is a little lower, and the Iran story shows up there: the Strait of Hormuz, the shipping channel for about a fifth of the world’s oil, is still largely closed. Over the weekend Iran said it would reopen it within a week if the US accepts its seven conditions, including lifting the blockade of Iranian ports. Trump rejected an Iranian proposal last week.
Short-term rates got the memo. Long-term rates are still on their own.
Every rally in stocks and Bitcoin last week ran into long-term borrowing costs. This week’s four readings will show whether the two sides of the bond market start agreeing again or keep pulling apart.
The short end is the price of short-term money, and the Fed steers it. The long end is the price of money for long-lived things, such as mortgages, business loans and government debt, and the market sets it. Usually the two move together. When they split, a Fed pause does not make long-term borrowing cheaper, because the long end is still saying money is expensive.
For digital assets, the pattern above is what we have seen. The usual reasoning is that Bitcoin pays no interest, so when safe government bonds pay more, holding it costs more in what you give up. We are not claiming that explains every move, and one week is not proof.
Monday’s survey of the services side of the economy gave a split first answer. Growth slowed, which is good news for anyone hoping inflation cools. But what businesses pay for things climbed to its highest level in more than four years, with fuel costs the most cited worry, and that is bad news for the inflation fight. That morning, long-term rates climbed back toward their highs and the dollar firmed, and the chance of a hike this month now sits above where it did Friday.
The rest of the week tests it. Wednesday’s Fed minutes were written before Friday’s weak jobs report, and with Fed Chair Kevin Warsh preferring to give the market fewer hints, they are one of the few windows into the room. Thursday’s Treasury buyback is the government’s most visible attempt to calm long-term rates. Bigger buybacks were announced in August, when long-term borrowing costs hit their highest in nearly two decades, and rates are higher today than that day. Friday’s consumer survey matters for what people expect prices to do, the expectation bond buyers care about most.
Short-term rates are betting the Fed can wait. Long-term rates are betting inflation will not. Monday’s prices reading gave the second bet a head start, and this week should show which one blinks.
The question this week is whether long-term rates rejoin the Fed’s story.
Here’s the current state, plus three ways this week could evolve from here.
Monday was the first day in a week that both sides moved the same way, but only because hike odds crept up toward the long end, not because the long end eased. The Pulse also shows one wallet steadily buying a very large amount of Ethereum, Section 04 has the detail.
Monday’s services prices reading was a first sample of this path. Friday’s read on what consumers expect prices to do is the next test.
This is the path where the gap closes from the long end’s side, with the buyback as the backstop. It has run at bigger sizes since September without capping long-term rates, so Thursday’s reaction is the part to watch.
Here the gap closes the other way, with short-term rates catching up to long-term ones. The minutes predate Friday’s jobs report, which could blunt the move.
BTC climbed on short liquidations, and one wallet is buying very large in ETH.
BTC: Price climbed on short liquidations while open interest stayed flat.
Since we last published, BTC is up about 1.6%. $19.9 million got liquidated across the market this stretch, and about two dollars in three of that came from short positions getting forced out, a real squeeze. Open interest barely moved over the same stretch, so the climb isn't showing up as fresh positioning, and we're not calling a clean Backdrop signal. Funding stayed calm, and the profitable traders' positioning leans toward the longs by a real margin. No wallet on either side sits close enough to forced liquidation to change that picture. Net result, a steady climb helped along by short liquidations, with open interest staying quiet underneath it.
This comes straight from Hyperliquid, a crypto exchange where every trade and every wallet is public. We pull it to see who's actually winning right now and which way they're leaning, not just what price did.
ETH: Open interest fell as price rose, and one wallet is buying very large.
Since we last published, ETH is up about 0.7%. Open interest fell about 2.5% while price rose, the signature of shorts covering rather than fresh buyers stepping in. One wallet is also working a very large buy order, about $10.9 million over four and a half hours, roughly 24 times the pace we count as a real signal. Liquidations were too light this stretch, under $1 million, to read anything from. Funding stayed calm, and the profitable traders' positioning leans toward the longs. No wallet on either side sits close enough to forced liquidation to change that picture. Net result, a rise driven by short covering and one large, patient buyer.
Same read as the BTC section above, pulled from Hyperliquid for ETH specifically. Same exchange, same method, different asset.
Reading The Pulse. Six things get pulled and scored every check. Open interest against price shows the crowd's real position, not just its size: both rising means fresh longs are opening, both falling means longs are capitulating, OI rising while price falls means fresh shorts are opening, OI falling while price rises means shorts are covering. Funding's 1-day trend against its 7-day baseline: running above the 7-day average means the cost of holding longs is rising, running below means that cost is easing. TWAPs shows both the largest order on the board and the fastest one, often different wallets, since the largest shows commitment and the fastest shows who's actually pressuring price right now. Liquidations already realized are read by which side got forced out, since forced-out longs and forced-out shorts mean opposite things. Liquidations still ahead looks at the nearest-to-forced-out wallets on each side, since the single largest position is often not the closest to getting wiped out. Tug of War compares the profitable wallets' positioning to the underwater crowd's: whichever side the profitable wallets are leaning is the side currently winning.
Gold’s funding eased for a second straight issue while silver climbed.
Minutes Wednesday, a buyback Thursday, price expectations Friday.
Four readings, two markets that disagree. Position for either answer, not one.
Last week’s pattern was rallies fading as long-term rates climbed, and Sunday night’s Bitcoin run faded too. If long-term rates ease this week, that pattern is breaking. If they keep climbing, it holds.
The Pulse shows no wallet in Bitcoin or Ethereum close to being forced out, so the weekend’s squeeze has cleared the nearest risk. Two scheduled events land in the afternoon, the minutes Wednesday at 2:00pm ET and the buyback Thursday at 1:40pm ET.
Two parts of the bond market disagreeing is a live test of which one other markets follow. How stocks and Bitcoin react to the minutes versus the buyback shows which signal they are taking their cues from.
Earn is for putting dollars to work: buy the coin and sell the perpetual contract against it to collect funding. This week the best place to do it was Hyperliquid, paying 8.6% annualized on the 7-day average, up from last issue’s 8.1%, so earners are getting a little more. Borrow is for people who need cash without selling their Bitcoin, and the cost is the funding you pay while you keep your exposure. This week the cheapest place was Crypto.com, at 2.6% annualized on the 7-day average, where last issue borrowers were paid 0.4%, so borrowing got a little more expensive. Over the past 30 days the cost averaged just 0.5%. Lesson 3 readings as of Mon about 12:07pm ET.
Read the Lesson →A covered call is when you hold a coin and sell someone the right to buy it from you at a higher price, collecting a fee up front. If the price never gets there, you keep the fee and the coin. If it does, you sell at the higher price and your gain stops there. On the November 27 expiry, 53 days out, the two calls that were also on Friday’s board pay more. On Bitcoin, the $95,000 call pays $1,705.42 per Bitcoin, a 13.9% annualized yield, up from $1,450.51 and 11.3% on Friday, even with three fewer days on the clock, and the wider $96,000 call pays $1,492.24, a 12.1% yield. On Ethereum, the $3,000 call pays $99.08, a 25.5% yield, up from 23.5%, and the wider $3,100 call pays $76.84, a 19.8% yield. On both coins the nearer strike pays more in yield, and the wider one leaves more room before your gain stops. Deribit option marks as of Mon about 12:57pm ET, mid prices.
Read the Lesson →The WTI against Natural Gas carry spread, long oil and short natural gas, a funding-carry trade rather than a directional bet, keeps shrinking. On a $200,000 position, the 7-day average projects $23,695.97 annualized, the second straight decline from $27,494.96 on Friday and $29,342.62 last Monday. Both legs are still earning funding.
Two stock pairs lost ground Friday morning and have not recovered. The Intel against Tesla pair, the earner-versus-spender rotation that tracks whether the market favors companies profiting from the AI buildout over those spending heavily on it, sits at 0.3095, down from 0.3228 on Friday, with Tesla gaining ground. SanDisk, a flash memory maker, against Dell, a computer maker, has held in a narrow range since, with Dell gaining ground. Bitcoin against QQQ ended the four-day window essentially unchanged at 113.03. Spread charts as of Mon about 12:52pm ET. The carry projection is as of about 12:10pm ET.
Read the Lesson →This content is produced by Harmonic for educational purposes. It is strategy education, not investment advice.