Trouble mounts for bitcoin and stocks as U.S. treasury borrowing costs surges

A global benchmark for long-term borrowing costs has hit a four-month high, posing a headwind to businesses and financial markets.

The 10-year U.S. Treasury yield, the interest rate the government pays to investors who purchase it's highly liquid and virtually default-proof bonds, has risen to 4.27%, the highest since Sept. 3, according to data source TradingView.

The 10-year U.S. Treasury yield sets the floor for borrowing costs across the economy and globe by acting as the "risk-free" baseline rate. Foreign giants like China and Japan snap up trillions in these notes, so Treasury yield spikes push up rates everywhere from Wall Street to Shanghai.

Banks price everything else, including corporate loans, mortgages, and auto loans, above the 10-year yield to account for the added risk of lending money to non-sovereign borrowers.

As the 10-year yield climbs, all rates in the economy and markets follow suit, potentially squeezing investments, consumption and deployment of capital in markets. This phenomenon is commonly called "financial tightening."

Therefore, the latest upswing in the 10-year yield could discourage investors from taking on risk in financial markets, creating a headwind for high-risk, high-reward assets like bitcoin, other cryptocurrencies, and stocks.

Interestingly, bitcoin has dropped over 1.5% to $91,000 since the early Asian hours. Meanwhile, futures tied to Wall Street's tech-heavy Nasdaq index have dropped by over 1.6%.

Read more: U.S. 10-Year Yield to 6%? Chart Pattern Echoes Bitcoin?s Bullish Setup From 2024

What's driving the yield higher?

The likely catalyst is President Donald Trump's tariff threats against Europe, tied to his Greenland takeover push, and fears of retaliatory U.S. bond sales by European holders. (Bond prices and yields move inversely, so sales drive yields higher.)

Over the weekend, Trump threatened to impose a 10% levy on imports from eight European countries starting Feb. 1, rising to 25% on June 1 unless a deal for Greenland is reached.

European leaders slammed Trump's remark as anti-free-market while considering possible retaliatory measures. Speculation has been circulating that Europeans may weaponize their $12.6 trillion pile of U.S. assets, including Treasury notes and stocks. Analysts, however, said it's easier said than done, as most assets are held by private players and not government funds.

Note that the spike in yields is not just limited to the U.S. Yields in Japanese government bonds have extended their recent surge in response to Prime Minister Sanae Takaichi?s election pitch to cut taxes on food.

Bond yields are rising across advanced economies, as markets price in higher fiscal spending and increased bond supply.

Read: Trump?s Security Strategy: Impact on Bitcoin, Gold, Bond Yields

12:30 UTC: Adds a para on Japanese bond yields.