As the war in Iran rages, U.S. Treasury yields – the market’s gauge of borrowing costs – have risen to multi-month highs, factoring in late Fed rate cuts and higher inflation expectations.
The question is when the Treasury market, which underpins global finance, starts causing problems for both the government and the economy, forcing the Trump administration to rethink war or consider a yield-capping mechanism.
According to ING, this point occurs when a little-known 10-year U.S. Treasury swap spread exceeds 60 basis points. We’re not there yet.
“Look at the 10-year swap spread. It’s just below 50 basis points now. If it were to get to 60 basis points, it would create enough problems to ultimately shape the war path. Why? It’s a measure of the devaluation of Treasuries. We need to avoid that. It’s not just the negative perception, it’s the added cost of financing U.S. debt,” said Padhraic Garvey, CFA and regional head of research for the 10-year swaps. Americas at ING. in a note to clients Friday.
Garvey emphasized that the rise in swap spreads is not just a matter of perception; they increase the implicit cost of financing for the U.S. government, making it more expensive for heavily indebted Uncle Sam to issue new bonds and borrow more. This could ripple through the financial system, tighten credit conditions and lead to risk aversion in both stocks and bitcoin. .
“Narrow swap spreads are a good thing. Wide swap spreads are the opposite,” he said.
Focus on 10-year yield
Other observers focus on the 10-year Treasury yield, the benchmark rate that sets borrowing costs across the U.S. economy, influencing risk-taking both in the economy and in financial markets.
Since the start of the Iran war in late February, the yield has jumped about 45 basis points to 4.37%.
According to the Kobeissi Letter, the range of 4.5% to 4.6% represents a critical “line in the sand”. This is the level at which President Trump backed away from his radical tariffs for Liberation Day last April.
“This is consistent with the rapid rise seen around ‘Liberation Day’ in April 2025. As the yield on the 10-year bond rose above 4.50%, President Trump began to propose a possible tariff pause. And, once the yield rose above 4.60%, he officially implemented a 90-day pause on reciprocal tariffs on April 9, 2025,” the letter on X notes.
Simply put, the bond market may soon reach a point where the Trump administration feels compelled to tone down the war.
On Tuesday, President Donald Trump suspended attacks on Iranian infrastructure, saying negotiations with Iran were productive, although Iran denied any contact. Meanwhile, early Wednesday, US and Israeli forces reportedly struck new Iranian energy facilities, including a gas pipeline in Khorramshahr.
If the yield rises above the 4.5% to 4.6% range, it could reach 5%, a level that analysts have flagged as a watershed for risky assets in recent years.
According to the Kobeissi Letter, the American economy cannot maintain a 10-year yield rate of 5%.
Arthur Hayes, co-founder of BitMEX and chief investment officer at Maelstrom Fund, previously said that a potential rise in the 10-year yield above 5% could trigger a mini-financial crisis, forcing the Fed to intervene with liquidity injections.
In other words, bitcoin might initially fall as a knee-jerk reaction, but liquidity injections could quickly reload the bulls.
The takeaway 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.
