US Treasury Yields Could Shift Trump's War Policy and Bitcoin

• U.S. Treasury yields have risen to 4.37% amid the ongoing conflict with Iran, nearing a critical psychological and economic threshold.
• Analysts identify the 4.5%–4.6% range as a "line in the sand" that previously forced the Trump administration to pause major economic policies.
• A potential climb toward a 5% yield could trigger a financial crisis, necessitating Federal Reserve intervention and impacting Bitcoin and other risk assets.

The Pressure of Rising Yields

As geopolitical tensions persist, the U.S. Treasury market is signaling increased stress. Yields on the benchmark 10-year Treasury note have climbed approximately 45 basis points since the end of February. This surge reflects market expectations of persistent inflation and a delay in interest rate cuts by the Federal Reserve.

Experts at ING point to the 10-year U.S. Treasury swap spread as a vital metric. If this spread exceeds 60 basis points, it signifies a significant increase in the implied cost of funding for the government. Wide swap spreads indicate that it is becoming increasingly expensive for the U.S. to manage its heavy debt load, which can tighten credit conditions across the global financial system and negatively impact both equities and Bitcoin.

Historical Thresholds and Policy Shifts

Historical data suggests that the Trump administration is sensitive to bond market volatility. According to The Kobeissi Letter, the 4.5%–4.6% range for the 10-year yield is a critical level. In April 2025, when yields breached 4.60%, President Trump implemented a 90-day pause on reciprocal tariffs to alleviate economic pressure.

Recent military developments have added to market uncertainty. While the administration briefly claimed productive talks with Iran on Tuesday, reports surfaced on Wednesday of U.S. and Israeli strikes on Iranian energy infrastructure, including a natural gas pipeline in Khorramshahr. If these actions continue to drive yields higher, the administration may be forced to once again temper its geopolitical or economic strategies to prevent a market collapse.

Implications for Bitcoin and Risk Assets

Financial analysts are closely watching the 5% mark for the 10-year yield. The Kobeissi Letter argues that the current U.S. economy cannot sustain interest rates at that level. Arthur Hayes, co-founder of BitMEX, suggests that exceeding 5% could lead to a localized financial crisis.

In such a scenario, the impact on Bitcoin is expected to follow a specific pattern:

• An initial "knee-jerk" drop in price as investors flee riskier assets due to tightening credit.
• A subsequent recovery and bullish surge triggered by emergency liquidity injections from the Federal Reserve to stabilize the economy.

With Bitcoin recently trading around $70,509.66, traders are being advised to monitor Treasury yields and swap spreads as leading indicators of shifting market sentiment and impending policy changes.