As the Iran war continues, US Treasury yields – the market measure of borrowing costs – have risen to multi-month highs, discounting delays in Federal Reserve rate cuts and higher inflation expectations.
The question is at what point does the Treasury market, which underpins global finance, begin to cause problems for both the government and the economy, forcing the Trump administration to rethink the war or consider a mechanism to cap yields.
According to ING, that point comes when a little-known 10-year US Treasury swap spread exceeds 60 basis points. We haven’t gotten to that point yet.
“Look at the 10-year swap spread. It’s currently just below 50 bps. If it shot up to 60 bps, it would mean enough trouble to ultimately shape the path of war. Why? It’s a measure of Treasury downgrades. We need to stay away from that. It’s not just the negative perception, it’s the added cost of financing US debt,” Padhraic Garvey, CFA and regional head of research for the Americas at ING said in a note to clients on Friday.
Garvey emphasized that the increase in swap spreads is not just due to perception; They increase the implicit cost of financing for the US government, making it more expensive for heavily indebted Uncle Sam to issue new bonds and take on more debt. This could affect the financial system, tightening credit conditions and causing risk aversion in both stocks and bitcoin. .
“Narrow swap spreads are what look good. Wide swap spreads are the opposite,” he said.
Focus on 10-year performance
Other observers focus on the 10-year Treasury yield, the benchmark rate that sets borrowing costs across the U.S. economy, influencing risk-taking in both the economy and financial markets.
Since the war with Iran began in late February, the yield has risen about 45 basis points to 4.37%.
According to The Kobeissi Letter, the 4.5% to 4.6% range represents a critical “line in the sand.” That’s the level at which President Trump backed away from his sweeping Liberation Day tariffs last April.
“This is in line with the rapid increase seen around ‘Liberation Day’ in April 2025. When the 10-year bond yield exceeded 4.50%, President Trump began to raise a possible tariff pause. And, once the yield exceeded 4.60%, he officially implemented a 90-day pause on reciprocal tariffs on April 9, 2025,” the letter notes in x.
Simply put, the bond market could soon reach a point where the Trump administration feels pressure to moderate the war.
On Tuesday, President Donald Trump halted attacks on Iranian infrastructure, saying there were productive talks with Iran, although Iran denied having had any contact. Meanwhile, early Wednesday, US and Israeli forces reportedly attacked new Iranian energy facilities, including a natural gas pipeline in Khorramshahr.
If the yield breaks the 4.5% to 4.6% range, it could rise to 5%, the level that analysts have pointed to as a turning point for risk assets in recent years.
According to The Kobeissi Letter, the US economy cannot maintain a 5% level of 10-year yield.
Arthur Hayes, co-founder of BitMEX and chief investment officer of Maelstrom Fund, has previously stated that a possible rise in the 10-year yield above 5% could trigger a mini financial crisis, forcing the Federal Reserve to intervene with liquidity injections.
In other words, bitcoin might initially fall into a knee-jerk reaction, but liquidity injections could quickly recharge the bulls.
The conclusion is clear. Bitcoin traders should closely monitor Treasury yields and swap spreads, as changes in these markets could directly influence risk appetite and policy decisions.
