Good Medicine Is Bitter?

Daily Updates:

• As we have covered in various iterations of our Daily Update, Trump and his administration have not been shy from expressing their focus on the long-end of the yield curve, particularly bringing longer-term yields down. President Trump also recently said “I don’t want anything to go down [referring to the stock market], but sometimes you have to take medicine to fix something”. So far this week, both US treasuries and equities have been selling off.

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• The President’s trade war intensified to a new level on Tuesday as the White House confirmed not only the “reciprocal tariffs” would take effect but also confirmed an additional 50% tariff on Chinese imports, bringing the total levy on Chinese goods to 104%.
• That medicine tasted bitter to US equities markets: the S&P 500 initially began the day up 450 points from Monday’s close – however those moves sharply reversed after the 104% tariff announcement on China and the index ultimately ended the day -1.57% lower, and the NDX fared worse at -1.95%. 
• Concurrent to an equity selloff which has seen the SPX more than 12% lower than before Trump’s “Liberation Day” tariffs, US treasuries (particularly those at longer maturities) have now extended a three-day loss, with long-end yields surging 20bps intraday. In fact, the 30Y yield is now at its highest since November 2023 and 10Y yields have surged over 30bps this week so far. 
• The aggressive plunge in US sovereign bonds is a sign that investors are not only slashing exposure in equities, but even US treasuries have been selling off.

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• The trade war intensification has resulted in the MOVE index, a gauge of US Treasuries’ implied volatility, rising to its highest levels since October 2023. Implied volatility of S&P 500 options has well exceeded levels seen during the yen unwind (see below). 
• Similarly, at-the-money implied volatility for BTC has spiked upwards over the past 24 hours across all tenors too, particularly at shorter-maturities which has further steepened the inverted term structure. ETH’s ATM IV shows a similar, but magnified picture. 
• In spot markets, only stablecoins USDT and USDC disrupt the sea of red across the major tokens – BTC trades down 2.3% on the day, at $77K, ETH is down 5.3%, and XRP and SOL are holding up slightly stronger at -2.1% and -0.6%, respectively.

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• In separate crypto-related news, the US Justice Department announced in a memo that it will limit the scope of cryptocurrency crimes it will investigate – focusing particularly on terrorism and drug cartel-related issues. The memo stated that “The Department of Justice is not a digital assets regulator.” 

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• Ripple is buying Hidden Road, a prime-brokerage, for $1.25B. The deal will involve Hidden Road leveraging Ripple’s RLUSD stablecoin as collateral across its prime-brokerage products. 

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• As crypto assets continue to struggle with the same headwinds that have brought US equities close if not into bear market territories already, demand for borrowing in DeFi protocols has taken a plunge too. According to vaults.fyi, the average U.S. dollar stablecoin yield, i.e., what protocols pay lenders in exchange for lending out crypto assets, has fallen to its lowest level so far this year (2.8%). For comparison, during the December altcoin market-cap peak last year, those rates were upwards of 13%.
• The total value locked across chains over the past week has declined double digits too, according to data from DefiLlama. Ethereum has been affected the most, with TVL dropping nearly 15%. Since December 2024, TVL has declined over 40%. The upcoming Pectra Upgrade, which we covered here, may help in part to bring activity back to the network.

This Week’s Calendar:

Charts of the Day:

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