As the Iran war rages on, yields on US Treasuries – the market’s measure of borrowing costs – have risen to multi-month highs, pricing in delayed Fed rate cuts and higher inflation expectations.
The question is at what point the financial market, which underpins global finance, begins to cause problems for both the government and the economy, forcing the Trump administration to reconsider the war or consider a mechanism to limit yields.
According to ING, that point comes when a little-known 10-year US Treasury bond swap spread blows past 60 basis points. We’re not there yet.
“Look at the 10-year swap spread. It’s just under 50bp now. If it were to shoot to 60bp, that would spell enough trouble to eventually shape the warpath. Why? It’s a target for the de-rating of government bonds. We need to steer clear of that. It’s not just the negative perception of the US’s extra cost of funding, it’s Garvehra,” CFA and regional head of research for the Americas at ING said in a note to clients on Friday.
Garvey emphasized that rising swap spreads is not just about 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 borrow more. This could ripple through the financial system, tightening credit conditions and leading to risk aversion in both stocks and bitcoin .
“Narrow swap spreads are the good look. Wide swap spreads are the opposite,” he said.
Focus on the 10-year dividend
Other observers are focused on the 10-year Treasury yield, the benchmark interest rate that sets borrowing costs across the US economy and influences risk-taking in both the economy and financial markets.
Since the Iran war began at the end of February, interest rates have risen by approx. 45 basis points to 4.37%.
According to The Kobeissi Letter, the 4.5%-4.6% range represents a critical “line in the sand.” That’s the level at which President Trump pulled back from his sweeping tariffs on Liberation Day last April.
“This is consistent with the rapid increase seen around ‘Deliverance Day’ in April 2025. When the 10-year note rate rose above 4.50%, President Trump began floating a potential tariff break. And when rates broke above 4.60%, he officially implemented a 90-day rate break on April 20, not April 20,” X.
In short, the bond market may soon reach a point where the Trump administration feels pressured to tone down the war.
On Tuesday, President Donald Trump halted attacks on Iranian infrastructure and claimed productive talks with Iran, although Iran denied 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 range of 4.5%-4.6%, it could rise to 5%, the level analysts have marked as a make-or-break point for risk assets in recent years.
According to The Kobeissi Letter, the US economy cannot sustain a 5% level in the 10-year interest rate.
Arthur Hayes, co-founder of BitMEX and chief investment officer at Maelstrom Fund, has previously stated that a potential rise in the 10-year yield above 5% could trigger a mini-financial crisis, forcing the Fed to step in with liquidity injections.
In other words, bitcoin could initially fall to its knees, but liquidity injections could quickly recharge bulls.
Takeaway is ready. Bitcoin traders must closely track government bonds and swap spreads, as shifts in these markets can directly affect risk appetite and policy decisions.
