U.S. Treasury yields look to move lower, as several significant tailwinds should propel this trade. I want to use options in iShares 20+ Year Treasury Bond ETF (TLT) to capitalize on the 10-year note yield falling back under 4%. The long-awaited new Federal Reserve chair appointment seems to be imminent, as indications that President Trump has seemingly made his choice on who will replace Jerome Powell. Prediction sites still have a very close race between Kevin Warsh and Kevin Hassett. Regardless, I believe it is safe to say that the stated goal of lower interest rates by the Trump administration will be embraced by the new central bank head honcho. The timing might be much sooner than later for lower interest rates, as the 10-year note has stubbornly stayed above 4% — irking Trump. Why do you ask? Well, I do not see Powell making it to May, the end of his term. US10Y 1Y mountain 10-year Treasury yield in past 12 months Also important to remember: Treasury Secretary Scott Bessent has organized and supervised the entire vetting process for a new Fed chair, using it to define an agenda that could produce sweeping changes at the central bank — and dramatically lower interest rates. Lastly, Trump has directed/suggested government-sponsored enterprises Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds to reduce mortgage rates and make homeownership more affordable. Lots of forces to push rates lower, yet the 10-year note yield briefly moved higher to 4.20% after the December nonfarm payroll report . The Trade: Risk reversal Sold the $86 TLT Feb. 20 regular expiration put option for $0.65 Bought the $88 TLT Feb. 20 regular expiration call option for $0.95 This risk reversal spread costs an investor $0.30, or $30 per spread. TLT was trading over $87 when this trade was executed. An investor must be prepared to own TLT at $86 if put was to be exercised before expiration. The upside is unlimited once TLT goes above $88, plus the $0.30 that was paid to establish this position. DISCLOSURES: Kilburg is long this trade. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
