Wolfe Research analyst Stephanie Roth says a settlement that ends the U.S.-Iran conflict would push 10-year Treasury yields lower, but not all the way back to levels seen before the war began.
In a note this week, Roth put the total move in the 10-year Treasury yield since the outbreak of hostilities at roughly 40 basis points. Using a sign-restriction model applied to daily changes in yields, the firm apportioned that move across several drivers: about 19 basis points attributable to the Iran shock, around 15 basis points tied to a repricing for stronger growth, and the remainder categorized as "other."
Roth and her team estimate that, if an agreement with Iran were reached, only a portion of the war-related increase would unwind. Wolfe Research's view is that roughly 10-15 basis points of the conflict-driven move could reverse, while the balance would persist, supported by firmer growth dynamics and a remaining risk premium. That scenario would leave the 10-year Treasury trading in a higher range than prior to the conflict - approximately 4.15% to 4.40% - according to the note.
The analysis underscores two key constraints on a full return to pre-war yields. First, Wolfe Research's decomposition of the roughly 40 basis point rise assigns a material share to stronger-than-expected growth, a factor that would not disappear simply with a political settlement. Second, Roth wrote that energy prices are likely to remain elevated and that some element of risk premium should endure even after any deal, limiting the scope for a complete reversal of the war-related component.
The firm also examined market pricing for Federal Reserve policy. Wolfe Research noted the probability attached to an additional rate hike has climbed sharply to near 44%. The firm characterizes that pricing as elevated relative to its base case and suggests there is room for at least some of that hawkish expectation to unwind, particularly if a peace agreement materializes.
Roth's note combines model-based attribution with judgment about post-settlement market conditions to conclude that a partial retreat in yields is the most likely outcome, leaving bond markets to operate in a structurally higher range than before the conflict.
Summary
Wolfe Research finds roughly half of the nearly 40 basis point rise in 10-year Treasury yields since the U.S.-Iran conflict began is attributable to the Iran shock. The firm expects only 10-15 basis points of that war-related move to reverse if a deal is reached, leaving yields around 4.15%-4.40%. Remaining upward pressure is linked to stronger growth and a residual risk premium, while rate-hike odds have climbed to about 44%, which could partially unwind with peace.