Bond traders are approaching a critical juncture as the rush to unwind US futures positions triggered by the Iran conflict runs its course. The initial selloff, which sent Treasury yields to multi-month highs, appears to be stabilizing after 17 trading sessions. Morgan Stanley research suggests these position-driven dislocations typically resolve within 10 to 15 days.

Before the conflict erupted on Feb. 28, futures positions heavily favored lower rates amid growth concerns. Those expectations reversed abruptly as war fears sparked inflation worries and oil price surges. Traders caught off guard scrambled to exit positions, accelerating the market decline. The unwinding peaked on March 2, but new short positions have since accumulated, targeting higher Treasury yields.

In the cash market, a JPMorgan survey showed neutral positioning rising substantially, reflecting uncertainty about Treasury yields' future path. The 10-year note futures saw the largest unwinds, with open interest dropping in 12 of the past 16 sessions for a combined 550,000 contracts. This represents approximately $45 billion worth of current 10-year notes. Citigroup analysts note both tactical and structural positioning now leans moderately short.

With the market near what Morgan Stanley calls an 'inflection point,' traders are watching closely to see whether the rout reverses or deepens. The next few weeks will reveal whether recent price action reflects temporary positioning shifts or a more fundamental market transformation.