U.S. Treasury yields, the market’s measure of borrowing costs, have surged to multi-month highs as the war with Iran intensifies, reflecting the impact of the Federal Reserve’s delay in cutting interest rates and rising inflation expectations.
The question is when the Treasury market that underpins global finance begins to cause trouble for governments and economies, forcing the Trump administration to reconsider war or consider establishing a mechanism to cap yields.
That will come when the little-known 10-year Treasury swap spread breaches 60 basis points, according to ING. We’re not there yet.
“Look at the 10-year swap spread. It’s just below 50 basis points right now. If it were to go up to 60 basis points, it would create enough trouble to ultimately determine the path of the war. Why? It’s a measure of a downgrade of U.S. Treasuries. We need to get away from that. It’s not just a negative perception, it’s the additional cost of financing U.S. debt,” Padhraic Garvey, a chartered financial analyst and regional head of Americas research at ING, said in 2019. A letter to clients on Friday.
Garvey emphasized that rising swap spreads are not just about perceptions; They increase the U.S. government’s implicit financing costs, making it more expensive for heavily indebted Uncle Sam to issue new bonds and borrow more money. This could ripple through the financial system, tightening credit conditions and leading to risk aversion in stocks and Bitcoin .
“Narrow swap spreads look good. Wide swap spreads do the opposite,” he said.
Focus on the 10-year yield
Other observers are focused on the 10-year Treasury yield, the benchmark rate that determines borrowing costs across the U.S. economy, affecting risk-taking in the economy and financial markets.
Since the outbreak of the Iran war in late February, yields have surged about 45 basis points to 4.37%.
According to the Kobeissi Letter, the 4.5%–4.6% range represents a critical “bottom line.” This is the level at which President Trump lifted sweeping tariffs on Liberation Day last April.
“This is consistent with the rapid surge around ‘Liberation Day’ in April 2025. As the 10-year Treasury yield surged above 4.50%, President Trump began to consider a tariff pause. Once yields exceeded 4.60%, he formally implemented a 90-day reciprocal tariff pause on April 9, 2025,” the letter on X states.
In short, the bond market may soon reach a point where the Trump administration feels pressure to deescalate the war.
President Donald Trump on Tuesday suspended attacks on Iranian infrastructure, claiming productive talks with Iran, although Iran denies any contact. Meanwhile, earlier on Wednesday, U.S. and Israeli forces reportedly attacked Iran’s new energy facilities, including a natural gas pipeline in Khorramshahr.
If yields break out of the 4.5%–4.6% range, they could rise to 5%, a level analysts have labeled as a make-or-break point for risk assets in recent years.
According to Kobesi’s letter, the U.S. economy cannot sustain the 5% yield on the 10-year Treasury note.
Arthur Hayes, co-founder of BitMEX and chief investment officer of Maelstrom Fund, has previously said that the 10-year Treasury yield may rise above 5%, which may trigger a mini-financial crisis and force the Federal Reserve to step in and inject liquidity.
In other words, Bitcoin may suffer an initial knee-jerk decline, but the liquidity injection may quickly energize the bulls.
The point is clear. Bitcoin traders need to closely track Treasury yields and swap spreads, as changes in these markets can directly impact risk appetite and policy decisions.
