As the Iran war escalates, U.S. Treasury yields, a market gauge of borrowing costs, have risen to multi-month highs, factoring in a delay in Fed rate cuts and rising inflation expectations.
The question is at what point will the U.S. bond market, which underpins global finance, begin to cause problems for both the government and the economy, forcing the Trump administration to reconsider the war and how to limit yields.
According to ING, that point occurs when the little-known 10-year Treasury swap spread exceeds 60 basis points (bp). we are not there yet.
“Look at the 10-year swap spread, which is currently just under 50bp. If it rises to 60bp, it will cause enough problems to eventually set the course for war. Why? ?This is a measure of a downgrade of U.S. debt. We need to avoid that. It’s not just a negative perception, it’s an additional cost to financing U.S. debt,” said Padraic Garvey, CFA and Regional Head of Americas Research. ING said in a note to clients on Friday.
Garvey emphasized that the rise in swap spreads is not just a matter of perception. These increase the implicit financing costs for the U.S. government, making it more expensive for a heavily indebted Uncle Sam to issue new bonds and borrow more. This could spill over into the financial system, tightening credit conditions and leading to risk aversion in both stocks and Bitcoin. BTC$70,509.66.
“A narrow swap spread looks good. A wide swap spread is 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 for the entire U.S. economy, which influences risk-taking in both the economy and financial markets.
Yields have risen about 45 basis points to 4.37% since the Iran war began in late February.
According to The Kobeissi Letter, the 4.5% to 4.6% range represents an important “red line.” This is the level at which President Trump reversed the sweeping tariffs he imposed on Emancipation Day last April.
“This is consistent with the spike seen around ‘Emancipation Day’ in April 2025. As the 10-year Treasury yield soared above 4.50%, President Trump began hinting at the possibility of a tariff suspension, and once yields rose above 4.60%, he formally implemented a 90-day suspension of reciprocal tariffs on April 9, 2025,” the letter says to X.
Simply put, the bond market could soon reach a point where the Trump administration feels pressured to ease the war.
On Tuesday, President Donald Trump insisted on productive talks with Iran and suspended attacks on Iranian infrastructure, but Iran denied any contact. Meanwhile, early Wednesday morning, American and Israeli forces reportedly attacked new energy facilities in Iran, including a natural gas pipeline in Khorramshahr.
If yields break out of the 4.5% to 4.6% range, they could rise to 5%, a level that analysts have cited as a make-or-break for risk assets in recent years.
According to the Kobeisi Letter, the US economy cannot sustain the 10-year bond yield at 5%.
Arthur Hayes, co-founder of BitMEX and chief investment officer of the Maelstrom Fund, has previously said that the potential for the 10-year Treasury yield to rise above 5% could trigger a mini-financial crisis, forcing the Fed to inject liquidity.
In other words, Bitcoin may initially fall in a sudden reaction, but the liquidity injection could quickly replenish the bulls.
The point is clear. Bitcoin traders should closely track U.S. Treasury yields and swap spreads, as these market changes can directly impact risk appetite and policy decisions.
