Traders Detect Shift in Tone on Iran War, Position for U.S. Treasury Rally

Optimism about a potential peace deal in the Middle East and declining oil prices have prompted bond traders to position for a rally in U.S. Treasuries, which could push the 10-Year Yield down to 4%. A large position on the options market bets that the yield on the U.S. 10-Year Treasury Bond will fall from its current level of 4.25% to 4.18% within three weeks. Another bet targets an even deeper rise in Treasuries, wagering that yields will drop to their lowest point since March 10 at 4.1%.

Ian Lyngen, Head of U.S. Rates Strategy at BMO Capital Markets, wrote in a report, "How long this shift in tone will last is undoubtedly a major uncertainty, and investors are aware that a single social media post could easily lead to a rapid reversal of the situation."