Treasury Hedges On 10-Year Yield Below 4% Can Spark Deeper Rally

Economic

Summary:

Demand for options in the US Treasuries market is building up by traders seeking protection against a sharp drop in 10-year bond yields further below 4%, a move that could unleash a broader rally across the bond market.

Open interest, or the amount of active positions held by traders, has recently ballooned in 10-year Treasury options hedging a yield move to as low as 3.85% from around 4% currently. A sustained move under that level would trigger more hedging by traders who are caught wrongfooted, setting off more Treasuries buying.

Yields on the 10-year notes dipped below 4% Thursday, trading around 3.98% as signs of credit stress in smaller US lenders spurred demand for safer assets.

The 4% level in 10-year Treasury yields — a benchmark for the cost of everything from corporate bonds to mortgages — has provided solid resistance for the bond market for much of the year. Yields only briefly dipped below the key handle after President Donald Trump announced sweeping tariffs in April, but have traded a few times below that level this week.

Over recent weeks, the options demand has seen open interest surge across corresponding 113.00 to 114.50 strikes. A bigger break for the 10-year yield under 4% would see these options extend deeper into-the-money.

That could prompt dealers who are short on these call options to start to hedging losses through buying the underlying futures putting more pressure on cash yields. This type of activity, known as delta hedging, can fuel significant trading activity in the Treasury futures market as dealers seek to maintain their options exposure in a neutral position.

On Wednesday, Treasury options trading included a large sized trade in the December 10-year options, which, based on open interest, appeared to involve profit taking on some of these outstanding 10-year calls. However, there are still multiple positions in the market as indicated by the outsized open interest, that could generate a flurry of activity.

Last week, a bond market rally saw 10-year yields sharply drop from near 4.15% after President Donald Trump threatened a massive increase of tariffs on Chinese products. The moves come as traders are also piling into wagers that the Federal Reserve could cut rates by a half-percentage point in one of the two remaining meetings of the year.

Source: Bloomberg Europe

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Cryptocurrency

Commodity

Bitcoin (BTC) may be quietly flashing a familiar bottom cue, one that often appears when gold (XAU) outshines risk assets.

BTC/XAU RSI Hits Oversold Territory

The BTC/XAU ratio’s daily relative strength index (RSI) has now fallen deep into oversold territory below 30, signaling that Bitcoin is once again underperforming gold to an extreme degree.

This setup has historically coincided with capitulation phases in crypto markets, followed by strong rebounds in BTC/USD once risk appetite returns.

Is Gold Signaling Bitcoin’s Next Bottom?_1

BTC/XAU vs. BTC/USD daily chart comparison.

In past cycles, such RSI resets have marked exhaustion points rather than the start of fresh downtrends. Each time the ratio hit these lows, Bitcoin’s dollar price began recovering within days or weeks, as capital rotated back from gold into crypto.

That’s exactly what happened in August 2024 and March 2025, when BTC/USD bounced 30–90% after similar oversold readings on the BTC/XAU chart.

Divergences: The Stronger Bottom Signal

While the current signal is purely oversold, the most powerful historical reversals came when oversold conditions coincided with bullish RSI divergences, when BTC/XAU made lower lows but RSI made higher ones.

These divergences revealed fading downside momentum even as prices slipped, often marking macro turning points. The August 2024 and March 2025 setups both fit this pattern and each triggered a far more sustained Bitcoin rally afterward.

Is Gold Signaling Bitcoin’s Next Bottom?_2

BTC/XAU vs. BTC/USD daily chart comparison.

If the same structure forms again in the coming weeks—oversold RSI followed by a higher low in RSI versus a lower low in price—it could strengthen the case for a multimonth BTC/USD recovery phase.

How High Can BTC Price Go On Gold-Led Rebound?

For confirmation, BTC/XAU must reclaim its 20- and 50-day EMAs as support, signaling a shift in relative momentum.

On the BTC/USD chart, a breakout above $116,000 would align perfectly with that rotation signal, while failure to hold $109,000 support could delay recovery.

Is Gold Signaling Bitcoin’s Next Bottom?_3

BTC/USD daily price chart.

Looking broadly, BTC is trending inside what appears to be a broadening wedge pattern.

A clear bounce above the consolidation area, aligning with the 20- and 50-day EMAs, may extend the Bitcoin price rally toward the wedge’s upper trendline near $125,000.

A further breakout could mean BTC hitting $150,000, a popular 2025 target. Conversely, failure to hold above the EMA resistance could mean retesting the mid-$109,000 levels for a breakdown toward $100,000.

Source: fxempire

Risk Warnings and Disclaimers

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Economic

Understanding the semiconductor value chain

The semiconductor industry operates through a globally distributed value chain spanning design, production and assembly. Each stage requires specialised expertise and significant capital investment, creating distinct opportunities for investors.

Understanding where value is created helps identify promising investment opportunities. Asian firms have established dominant positions in manufacturing stages that US companies cannot easily replicate.

The following sections break down each stage and highlight the key players shaping the industry's future.

Figure 1: Infographic showing key players within the semiconductor value chain

Stage 1: design

Semiconductor design represents the most research-intensive phase where chips are conceptualised using specialised software. Companies employ Electronic Design Automation (EDA) tools and intellectual property (IP) cores to create chip architectures.

This stage demands significant engineering expertise and innovation. While US firms like Nvidia lead in cutting-edge chip design, Taiwan's MediaTek has carved out a substantial position in mobile and automotive chips.

Design companies typically operate with high margins due to their intellectual property advantages. However, they depend entirely on manufacturing partners to produce physical chips.

Stage 2: wafer production

Silicon wafer production creates the base material for all semiconductor chips. Manufacturers produce pure silicon cylinders, slice them into thin wafers and polish them to perfect smoothness.

These blank wafers serve as the canvas upon which circuits are printed during fabrication. The process requires extraordinary precision and purity standards.

Japan's Shin-Etsu and SUMCO together supply more than half the world's silicon wafers. Their dominance in this foundational material gives them significant influence over global chip production capacity.

Wafer suppliers benefit from steady demand across all semiconductor segments, making them relatively defensive plays within the sector.

Stage 3: front-end manufacturing

Front-end manufacturing represents the most capital-intensive stage where actual chips are fabricated on silicon wafers. This process involves repeated cycles of deposition, lithography, etching and polishing.

Producing advanced chips requires over 1000 steps spanning four to six months. Modern fabrication facilities cost billions of dollars to construct and equip.

Fabrication and foundry services

Taiwan's TSMC commands approximately 70% of global foundry revenue, manufacturing chips for Apple, AMD, Nvidia and many more. The company pioneered high-volume production of 3nm chips, cementing its technological leadership in the world's most advanced chips.

South Korea's Samsung Electronics operates the second-largest foundry business, whilst China's SMIC ranks fourth globally.

Memory chip dominance

South Korea is home to memory chip giants Samsung and SK Hynix, which dominate the global DRAM and NAND flash memory markets. Together, they control more than 70% of DRAM market share.

Memory chips are found in virtually every computer, smartphone and data centre worldwide. However, demand can be cyclical, closely tied to consumer electronics upgrade cycles and data centre expansion.

Materials and equipment suppliers

Japanese firms hold commanding positions in photoresists and photomasks essential for printing circuit patterns onto chips. Hoya and Shin-etsu are key players in these specialised materials markets.

Manufacturing equipment represents another crucial dependency. Tokyo Electron supplies deposition tools and etching equipment, whilst Advantest provides testing systems that no modern foundry can operate without.

Raw materials form the foundation of semiconductor production. China controls 69% of global silicon production and 98% of gallium production according to US Geological Survey data. These raw materials represent powerful bargaining chips in trade negotiations.

Stage 4: assembly, test and packaging

After fabrication, wafers are cut into individual chips, tested for defects and packaged into protective frames for circuit board mounting. This back-end manufacturing stage is more labour-intensive than fabrication.

Taiwan's ASE dominates outsourced assembly, test and packaging (ATP) services globally. China's JCET and Tongfu Microelectronics have rapidly expanded their market share in recent years.

The shift towards artificial intelligence (AI) computing has increased demand for complex packaging solutions, benefiting established players with technical expertise.

TSMC earnings spotlight

TSMC released third-quarter revenue data earlier this month showing 30% year-on-year (YoY) growth, exceeding market expectations. Today's full earnings report is expected to reveal record net income of NT$408.4 billion (26% YoY growth).

Investors will scrutinise revenue contribution from advanced nodes (7nm and below) to gauge demand for AI chips. The management's strategy to handle volatile US trade policies will also be a focal point. TSMC has already committed to build facilities worth $165 billion in Arizona.

Performance comparison across the value chain

Valuation metrics and performance vary significantly across different semiconductor segments, reflecting their distinct roles within the value chain and investor sentiment. Investors should look beyond US and European companies to capture the full potential of the semiconductor industry.

Source: ig

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Economic

Chairman Powell spoke on Tuesday, addressing several topics. Of note was the following quote:

“We may be approaching the end of our balance sheet contraction in the coming months.” The market interpretation is that QT is ending soon. As a reminder, QT, also known as quantitative tightening, has been in effect for over three years.

Since starting QT, the Fed has shaved its holdings by nearly $3.5 trillion. The graph below shows that the Fed’s current holdings of Treasury, mortgage, and agency assets stand at approximately $6.6 billion, still more than 50% above pre-pandemic levels.

Powell made this somewhat surprising statement in a speech to the National Association of Business Economics in Philadelphia. To explain why QT could end, he pointed to the liquidity strains that emerged in the fall of 2019. At that time, short-term lending rates for some borrowers were spiking despite the borrowers having ample and pristine collateral to support the loan.

The Fed feels they were late to address those liquidity strains. As a result, they cut rates by 0.75% despite a relatively strong economy. While Powell doesn’t claim to see similar problems, he is noticing some recent tightness in the lending markets. Not surprisingly, as we recently noted, Powell’s comments come as the Fed’s overnight reverse repo program balances are near zero, signifying the market no longer has excess reserves. So, is QT resulting in tighter market conditions? Powell must think so.

On the margin, ending QT is beneficial for the bond markets. In addition to absorbing higher-than-normal Treasury debt due to fiscal deficits, the market is also having to absorb about $40 billion monthly due to the Fed’s shrinking balance sheet. Of the $40 billion, $5 billion is in US Treasuries, and the remaining $35 billion is in mortgage-backed securities.

Some Distress In The Junk Credit Markets

The graphic below tracks corporate credit yield spreads. Even if you are not a corporate bond investor, corporate credit spreads (vs US Treasuries) can be a good leading indicator of the equity markets. Tight, or low, spreads indicate bullish sentiment in corporate bonds and often the stock market. Widening, or higher, spreads indicate some credit concerns that can leak into the stock market. The page below helps us track whether spreads are tightening or widening.

Of note, the lower right-hand box shows that the yields on junk bonds (less than BBB) have widened over the last four weeks versus investment grade bonds (BBB or higher). While the amount of widening, when quoted in basis points, may seem decent, the graph in the top right corner shows that the spread widening is barely perceptible in a longer-term context. We will continue to track the recent widening. A continuation within junk bonds and, importantly, in lower-rated investment-grade bonds would be more concerning.

Source: investing

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Devin

Political

Senate Majority Leader John Thune is ready to bring to a vote legislation imposing sanctions on countries that trade with Russia, an aide to the Republican leader said.

Thune met earlier Thursday with the bill’s sponsor, Republican Senator Lindsey Graham, whose legislation has languished for months despite having the support of at least 85 senators.

The Thune aide didn’t provide a specific timeline for a vote on the legislation.

The bill gives President Donald Trump authority to impose tariffs of up to 500% on imports from countries that buy Russian energy products and are not actively supporting Ukraine. This specifically targets major consumers of Russian energy, such as China and India.

The latest version of the legislation gives Trump the power to set and adjust the levies as he pleases, a person familiar with the bill said. Trump could also choose to allow for exemptions.

Congress and the White House are in discussions over the timing of the bill and any decision over whether to move forward ultimately rests with Trump, the person said.

Trump had been reluctant to green light a vote but he has become increasingly frustrated with Russian President Vladimir Putin over the war in Ukraine and confirmed this week he’s sending more defensive weapons to President Volodymyr Zelenskiy’s government, sweeping aside an earlier pause by the Pentagon.

Trump earlier Thursday said he is speaking Putin, a day before a planned meeting with Zelenskiy at the White House.

“The conversation is ongoing, a lengthy one, and I will report the contents, as will President Putin, at its conclusion,” Trump posted on social media.

The House’s own version of the bill was introduced earlier this year and mirrors the Senate’s version. In September, Republican Representative Mike Turner urged Speaker Mike Johnson to schedule a vote.

But a House vote could still be a way off. Johnson has kept House lawmakers home during the US government shutdown and has said he won’t bring them back until the Senate resolves the funding stalemate.

Source: Bloomberg Europe

Risk Warnings and Disclaimers

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Adam

Cryptocurrency

Block 1: Essential news

BlackRock is betting big on tokenization: "We are only at the beginning," according to Larry Fink

For Larry Fink, CEO of BlackRock, the tokenization of traditional assets (RWA) is still in its infancy. He predicts that all types of assets—bonds, stocks, real estate—will one day be represented on blockchain, enabling more liquid, 24-hour, global markets. Already very active through its BUIDL fund—which holds 34% of the tokenized Treasury bond market—BlackRock captures 8% of a market estimated at $34bn. Fink now wants to go further: tokenizing ETFs to attract crypto investors to long-term investments. For him, this new wave represents the "next big opportunity" for BlackRock.

Euro stablecoins: the Governor of the Bank of France encourages... but regulates

At the Fintech 2025 Forum, François Villeroy de Galhau welcomed European initiatives around euro stablecoins. He called on banks to develop a local alternative to the dollar, citing a recently launched consortium of nine European banks. However, behind this apparent support, the governor is calling for a tightening of the MiCA framework: increased control of non-EU issuances, European supervision by ESMA, etc. As a result, euro stablecoins are struggling to emerge, with only a 0.18% market share—far behind the dollar giants. Binance's BNB has surpassed USDT and XRP, climbing onto the cryptocurrency podium.

IBIT: BlackRock's Bitcoin ETF becomes its most profitable product

Launched less than two years ago, the IBIT spot Bitcoin ETF has established itself as BlackRock's crown jewel: nearly $100bn under management, $245 million in annual revenue... and a faster rise than any of the firm's other ETFs. It has already surpassed giants IWF and EFA, and is approaching the very exclusive $100bn club in record time (435 days). Institutional adoption is accelerating—Harvard has invested $116m—and BlackRock is already working on the next step: a premium Bitcoin ETF based on covered calls. But it's worth remembering that IBIT provides exposure to the price, not full ownership. When it comes to sovereignty, nothing can replace self-custody.

Bitcoin: a whale triggers a crash... and pockets $150m in profits

An anonymous investor heavily shorted bitcoin just before the announcement of new US tariff measures, causing the market to plummet 15%. The result: more than $20bn in liquidations, $400bn wiped out, and a persistent rumor: stroke of genius or insider trading? The address reportedly repeated the move on ETH and SOL, potentially raking in an additional $160m. Traders are talking about a classic macroeconomic bet, but the precision of the timing raises questions. Meanwhile, platforms slowed down and thousands of investors were caught off guard. A reminder of the risks of leverage in an ultra-volatile market... where whales are still the best equipped.

Block 2: Crypto Analysis of the Week

Megawatts are in short supply, interconnection queues are growing, and artificial intelligence is gobbling up every available kilowatt. In this bottleneck, one player is emerging as an infrastructure partner: Bitcoin miners. Farms designed to swallow high-density megawatts, cool frenetic racks, and run 24/7—exactly what AI data centers demand. Bernstein puts it in black and white: these crypto operators are becoming "strategic enablers" of AI.

The diagnosis is stark: network congestion is delaying the expansion of data centers in the United States, with interconnection delays climbing to seven years in some areas. Meanwhile, Bitcoin miners control more than 14 GW of "secured" electricity—contracts, sites, transformers already in place. Operational translation: a shortcut to scale. Rather than starting from scratch ("greenfield"), hyperscalers can plug their AI loads into existing sites and save years. Bernstein cites IREN and Riot Platforms: converting these campuses would reduce deployment time by up to 75%.

The hunger for computing power shows no sign of abating. Microsoft anticipates a capacity shortage until 2026; elsewhere, deals are being made to reserve chips and racks: Nebius signs $17.4bn worth of GPUs for Microsoft; CoreWeave commits $6.3bn to Nvidia to block its unused server space. In this sprint, Bitcoin mines resemble pre-wired refueling stations.On the crypto side, the economic equation is driving change. As halvings occur, the break-even point rises; in a prolonged bear market, operators find themselves on a tightrope. Diversifying into AI means smoothing out cycles and monetizing physical assets (land, lines, substations) that have already been amortized.

The movement is attracting heavy capital. A consortium formed by BlackRock, Nvidia, xAI, and Microsoft has just announced the acquisition of Aligned Data Centers for $40 billion—the first step in an Artificial Intelligence Infrastructure Partnership (AIP) that plans to invest up to $100 billion (including $30 billion in equity). Aligned has 50 campuses in the Americas and more than 5 GW in operation or planned. The subliminal message is that data infrastructure is becoming the raw material for the next phase of AI, and the strongest balance sheets are getting on board.

On the stock market, the story is spreading. The shares of miners pivoting towards AI (Hut 8, IREN, Bitfarms, CleanSpark) are rising, buoyed by their new status: no longer just "Bitcoin games," but pure infrastructure players. When BTC flirts with $110,000, cash flow breathes a sigh of relief; when it settles down, AI contracts anchor the flow.

When AI runs out of power, the connection is called Bitcoin_1

Bitcoin, Hut 8, IREN, Bitfarms, and CleanSpark stock prices since January 1

There remains a knock-on effect that will need to be monitored. Each megawatt shifted from mining to AI reduces competitive pressure on the mining side—and, symmetrically, intensifies the battle for capacity on the data center side. Where will the balance stabilize? At the intersection of electricity prices, BTC cycles, the AI learning curve, and local incentives (permits, taxation, networks).

Beyond the short term, one reality is clear: these crypto sites, created to absorb elastic and controllable electrical loads, tick all the boxes for the new logistics of computing. They are flexible for the network, quick to reconfigure, already financed, and connected. Yesterday, they were "bitcoin farms." Tomorrow, they will be versatile nodes in the computing economy.

When AI runs out of power, the connection is called Bitcoin_2

Block 3: Readings of the week

Federal authorities seize a record $15 billion in bitcoins from an alleged fraud empire (Wired)

The new stablecoin regime ( FT)

Source: marketscreener

Risk Warnings and Disclaimers

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Commodity

The gold market continues to show robust fundamentals that support prices at record highs near $4,200 an ounce. However, one thing the market is lacking is sellers, as many investors see no urgency to take profits amid this strong momentum.

In a recent interview with Kitco News, John Merrill, Founder, President and CIO of Tanglewood Total Wealth Management, said that gold currently represents about 12% of his total portfolio — an overweight position compared to his target allocation of 10%.

Merrill explained that he has been bullish on gold since 2023, initially starting with a 5% to 6% allocation. He added that he has rebalanced his gold holdings a few times over the past two years due to the metal’s unprecedented gains. However, looking ahead, he sees no reason to take profits right now.

“We are going to continue to hold our gold,” he said. “We traditionally rebalance at the end of the year, so we will look at our gold then, whether the price goes up or down.”

Even if he does take some gold profits off the table, Merrill said that a fundamental shift in the global economy means he will continue to maintain a core position.

“We will own gold. I don't know what the percentage will be 20 years from now, but we will own gold because nothing replaces it,” he said.

Merrill explained that rising global sovereign debt is currently the biggest factor driving gold demand. He said that investors are desperate to protect their wealth as fiat currencies around the globe lose purchasing power.

At the same time, he noted that rising debt is creating significant risks for long-term Treasuries, which were once considered the ultimate safe-haven asset.

“We started to recognize this in 2023 — that there were new drivers for gold. We’d never thought of gold as an inflation hedge because it always had a poor history with that, but it is a disaster hedge. And now it's moved beyond being a disaster hedge to being a currency hedge,” he said.

Merrill said gold’s role as a currency hedge can be traced back to the 2008 Great Financial Crisis, when gold prices began their first run to all-time highs as the Federal Reserve dropped interest rates to zero and introduced quantitative easing.

He added that government stimulus spending during the 2020 pandemic further exacerbated sovereign debt issues, and the threat of a recession will only worsen the health of the global financial system.

On top of unchecked government spending, Merrill said that the weaponization of the U.S. dollar against Russia and the intensifying global trade war are eroding trust in the dollar as the world’s reserve currency.

“Gold has become the alternative because no one has a currency that is either big enough, stable enough, or free enough to operate as a reserve currency,” he said.

Merrill noted that the deglobalization trend makes it increasingly difficult for nations to cooperate on developing any new form of reserve currency.

Although gold prices are currently trading at all-time highs — up nearly 60% so far this year — and appear overbought, Merrill said he doesn’t see this as an obstacle to further investment demand.

He added that while gold looks overbought against major currencies, it remains undervalued compared to equity markets.