As the Iran war rages on, U.S. Treasury yields – the market’s gauge of borrowing costs – have surged to multi-month highs, pricing in delayed Fed rate cuts and higher inflation expectations.
The question is at what point the Treasury market, which underpins global finance, starts causing trouble for both the government and the economy, forcing the Trump administration to rethink the war or consider a mechanism to cap yields.
According to ING, that point comes when a little-known 10-year U.S. Treasury swap spread blows past 60 basis points. We are not there yet.
“Watch the 10-year swap spread. It’s just below 50bp now. If that were to shoot to 60bp, it would spell enough trouble to ultimately shape the war path. Why? It’s a measure of the de-rating of Treasuries. We need to steer clear of that. It’s not just the negative perception, it’s the added cost of funding U.S. debt,”…
