Bitcoin and stocks stabilize after early-week slide. The bond market isn’t convinced.

Bitcoin (BTC) and global equity markets have stabilized after an early-week sell-off, which was exacerbated by a spike in oil prices following military conflict between the U.S., Israel, and Iran. However, bond markets are signaling caution, with rising yields indicating renewed inflation concerns and diminishing expectations for Federal Reserve rate cuts.

Bitcoin traded above $70,000 on Friday, marking a nearly 10% increase for the week. It had briefly reached nearly $74,000 on Wednesday after falling to around $65,000 over the weekend due to geopolitical tensions. Equity futures, such as those tied to the S&P 500, also recovered after hitting a multi-week low of 6,718 points on Tuesday.

Market Reaction to Geopolitical Events

The initial risk-off sentiment was triggered by reports of Iran blocking oil tankers in the Strait of Hormuz. Markets stabilized after the U.S. pledged naval escorts and political risk insurance for tankers traversing the strait.

Despite the recovery in risk assets, the bond market remains uneasy. The yield on the 10-year U.S. Treasury note has climbed from 3.93% to 4.15% over four consecutive days. The two-year yield, more sensitive to interest rate expectations, rose from 3.37% to nearly 3.60%.

This rise in yields suggests traders are reassessing the monetary policy outlook, as the conflict-driven spike in energy prices threatens to reignite inflation. Consequently, investors now see less than a 50% chance of two 25-basis-point Fed rate cuts this year, a significant drop from nearly 80% before the conflict began, according to CME Fed funds futures.

Economic Data and Future Outlook

Trader Bryan Tan noted the tension in the rally, highlighting the rise in yields and the conflict between a resilient economy, evidenced by strong ISM Services (56.1) and ADP (+63K) data, and an inflationary energy shock. He also pointed to the hawkish uncertainty added by the Warsh nomination.

Analysts suggest that the inflationary impact of oil shocks typically unfolds gradually, potentially keeping yields elevated and capping upside for risk assets like stocks and cryptocurrencies. Historically, oil prices tend to rise gradually for weeks following major geopolitical shocks, with markets often underpricing the initial phase of supply risk.

Recent strong U.S. economic data has also contributed to rising yields and scaled-back rate-cut expectations. The ISM index for the services sector rose to 56.1 in February, and the ADP report showed 63,000 private sector job creations, the strongest reading since July 2025.

Market attention is now focused on the upcoming nonfarm payrolls report and wage growth figures. A stronger-than-expected report could further diminish expectations for Fed rate cuts and introduce fresh volatility into financial markets.