The sharp market drop last night may have left many people puzzled. Expectations for a rate cut in December are clearly rising, so why is the market heading down instead?

If we zoom out to the global markets, the answer actually lies in the undercurrents of liquidity.

First, let's look at abnormal signals in the bond market. The 1-year US Treasury yield not only didn’t fall, but actually ticked up slightly—which is quite unusual. Short-term treasuries are most sensitive to interest rate changes and should move downward when rate cut expectations strengthen. What does this current trend indicate? The market hype over a December rate cut may be nearing its end.

The long end is even more intriguing. The yields on 10-year and 30-year US Treasuries have surged. If investors truly believed in a rate cut, funds should have poured into long-term bonds for safety. Why are they selling instead? Clearly, traders’ attention has shifted away from the rate cut narrative.

Two main forces are pushing up long bond yields:

Last night’s PCE data showed that while September inflation didn’t heat up further, it remains sticky. Market concerns about the future inflation path are directly reflected in long-term bond yields.

On the other hand, expectations for a yen rate hike are intensifying. The narrowing US-Japan interest rate differential is causing capital to move out of US Treasuries and back into yen-denominated assets. This wave of carry trade unwinding is pushing up both US and Japanese bond yields.

On the surface, US stocks still look relatively stable: the three major indices closed in the green, and the VIX fear index dropped to around 15. But the Russell 2000 index is falling, indicating that overall market risk appetite hasn’t truly recovered.

In summary: the market focus has shifted from “betting on rate cuts” to “responding to yen rate hikes,” and capital is being reallocated. For BTC holders, pay extra attention during the Asian sessions next week. The kind of sudden institutional sell-off we saw last Monday could easily recur when liquidity is tight. Don’t let your guard down.