Investing.com -- A resolution to the U.S.-Iran conflict would push 10-year Treasury yields lower, but rates are unlikely to return to pre-war levels, according to Wolfe Research analyst Stephanie Roth.

In a note this week, Roth estimated that roughly half of the approximately 40 basis point rise in 10-year yields since the war began is attributable to the Iran shock, with the remainder reflecting stronger-than-expected growth and a reversal of a February rally driven by AI-related fears.

"If/when there is an agreement with Iran, we would not expect yields to return to pre-war levels," Roth wrote.

Instead, Wolfe Research estimates "roughly 10–15bp of the war-related move would reverse, with the balance remaining due to firmer growth and a residual risk premium."

That would leave rates trading in a higher range than before the conflict, at approximately 4.15%-4.40%.

To break down the 40 basis point move, Wolfe Research used a sign-restriction model on daily yield changes, attributing approximately 19 basis points to the Iran shock, 15 basis points to a repricing of growth, and the remainder to an "other" category.

Roth believes energy prices are likely to stay elevated and some risk premium should persist even after a deal, limiting the scope for a full reversal of war-related yield moves.

On rate hike expectations, Wolfe Research noted that the probability of a hike has risen sharply to around 44%, which the firm views as elevated relative to its base case, leaving room for that pricing to partly unwind, particularly if a peace agreement materializes.