Why is Bitcoin crashing while bonds lose $2.5 trillion today?

The bond market is breaking one of the usual rules of panic.

When war risk rises, government debt often catches a bid because investors want somewhere defensive to park money. That is not what this market is doing. Instead, the Iran war has fed fears of stagflation, and that has pushed borrowing costs higher while prices across markets stay under pressure.

So far in March, more than $2.5 trillion has been wiped from the value of global bonds. That puts the market on track for its worst monthly loss in more than three years.

The drop is still smaller than the roughly $11.5 trillion already erased from global equities, but that is not really the point. What makes this stand out is that debt has been falling during a geopolitical shock, when it would normally be expected to hold up better.

A Bloomberg index tracking government, corporate and securitized debt shows the total market value of that universe has fallen to $74.4 trillion from almost $77 trillion at the end of February.

If that holds, it would be the biggest monthly decline since September 2022, when the Federal Reserve was still deep in its aggressive rate-hiking cycle. In percentage terms, the index is down 3.1% this month.

In the United States, Treasury yields have climbed to their highest levels in months after a third straight week of bond losses. The move reflects growing bets that the Fed may have to keep tightening to deal with inflation pressure tied to the war and the wider commodity shock.

The same pressure is showing up across Asia. Government bond yields have moved higher in India, Japan, and South Korea.

In Australia, the 10-year yield rose on Monday to its highest level since 2011. In New Zealand, the 10-year yield is now at its highest level since May 2024.