Bitcoin BTC$92,212.65 rose Monday, supposedly in anticipation of a Federal Reserve interest-rate cut this week, although a continued rally in Treasury yields signaled caution.

The Fed is expected to cut the target interest rate by 25 basis points to the 3.5%-3.75% range. It would be the third straight reduction in the cost of borrowing, amounting to a cumulative easing of 175 basis points since September 2024.

Rate cuts typically inject liquidity into the financial system. This cheaper capital encourages lending and investment, spurring risk-on behavior across financial markets and the broader economy. Lower policy rates also suppress short-term interest rates across the curve, driving bond prices higher and yields lower.

The net expected result is bullish momentum in risk assets alongside falling Treasury yields.

BTC seems to be behaving accordingly, trading over 1.5% higher on the day near $91,800, CoinDesk data show. Prices have carved out higher lows and higher highs since dropping nearly $80,000 roughly three weeks ago.

The surprise is Treasury yields, which are rising, not falling. The benchmark 10-year yield is currently 4.15%, the highest since Nov. 20 and up 2 basis points on the day and nearly 20 basis points since Nov. 28.

Hawkish cut?

Observers suggest that the yield movement signals the rate cut is a foregone conclusion, and bond traders are pricing in Chair Jerome Powell's likely non-committal stance on further easing in 2026. Such a "hawkish cut" could weigh on risk assets, including BTC.

"The risk, however, lies not in the cut itself but in the press conference that follows," Markus Thielen, founder of 10x Research, told CoinDesk. "Powell is likely to signal a pause rather than a path of further cuts, and the bond market is already positioning for that outcome, while crypto markets, so far, have largely ignored it"

Greg Magadini, director of derivatives at Amberdata, said the recent softening in the U.S. labor market and inflation figures, including Friday's delayed core PCE for September, supports the case for lower interest rates. However, the focus would be on the guidance.

"Markets will be watching to see if the Fed rate cut is dovish or hawkish," Magadini said.

Analysts at the Dutch investment bank ING said the growing divide at the Fed over whether inflation or labor-market weakness is the main issue points to a slower pace of rate cuts in 2026.

"We doubt the Fed will suddenly become more relaxed on the inflation narrative given the lack of timely data. As such, the most dovish they could possibly be is to put a second rate cut for their 2026 forecast, but they will be reluctant," the analysts said in a note to clients.

Stepping away from the Fed, Jeff Anderson, head of Asia at STS Digital said the increase in the 10-year yield is consistent with the pattern seen in recent months, where it has tended to bounce back from 4%.

"Rates volatility has been extremely low since this summer and the market has been happy to sell Treasuries (buy yields) any time we trade down to 4.00%," Anderson said.

Anderson explained that the market is currently more focused on Japanese government bond yields and their impact on global markets. Over the weekend, CoinDesk discussed how Japan's rate hikes could lift bond yields worldwide, potentially triggering market jitters.

"The market is more focused on Japanese yields (potential hike in Dec and risk asset deleveraging) and whether or not the Fed starts buying T-Bills this week," Anderson noted.

The recent tightening in dollar liquidity has triggered speculation that the Fed will soon announce "reserve management purchases, comprising purchases of short-term Treasury notes or T-bills. According to some observers, the bank could discuss such purchases this week.