US Treasuries Rise as Market Expects Fed Rate Cuts Following Iran Ceasefire

Summary

A US-Iran ceasefire has caused oil prices to plummet, leading bond traders to increase bets on a Federal Reserve rate cut this year.Sina Finance Consequently, U.S. Treasury prices have risen, with yields falling across the curve, led by short-term bonds.Zhitong Before the de-escalation, the conflict had fueled inflation concerns, nearly eliminating rate cut expectations and even prompting bets on a hike.Yahoo Asia+ 2 Now, the probability of a Fed rate hike has dropped to near zero, while expectations for a rate cut by year-end have surged.Sina Finance+ 2

Impact Analysis

So the market is treating a two-week ceasefire Sina Finance as a permanent peace treaty. It’s a classic geopolitical head-fake. Just weeks ago, traders were dumping 2-year notes and pricing in hikes as oil spiked on war fears Sina Finance. Now, they’re piling back in, aggressively pricing in rate cuts because oil has dropped.Sina Finance+ 2 The narrative has completely flipped, with the market unwinding the entire inflation risk premium and sparking a bull steepener trade. Rate cut odds have jumped from nearly zero to as high as 60% for later this year.Zhitong

I don’t buy it. This feels like a significant overreaction to a temporary event. The move looks most overdone at the front end of the curve. The trade here is to fade this rally. Shorting 2-year Treasuries is a good way to position for a reality check if inflation proves sticky or, more likely, when the market remembers this ceasefire isn’t a permanent resolution.