Bond traders boost bets on a Fed cut this year after ceasefire | Business

Bond traders boosted wagers that the Federal Reserve will lower interest rates this year as a U.S.-Iran ceasefire sent oil tumbling.

Treasuries rallied along with other government debt markets, paring losses since the war began Feb. 28. The energy price surge it caused threatened to stoke inflation and cause central banks either to delay interest-rate cuts or to raise rates.

In the case of the Fed, the oil shock evaporated expectations for two-quarter point cuts this year, and briefly stoked wagers on a hike. Wednesday’s rally saw swap contracts price in a roughly 1-in3 chance of a cut, up from near zero at the start of the week.

“Treasuries have taken the ceasefire announcement in stride, with investors restoring rate cuts for 2026 and rates moving lower amid expectations that inflationary pressures could ease,” said Gennadiy Goldberg, head of U.S. interest rates strategy at TD Securities.

U.S. yields declined by less than three basis points, trailing steeper yield declines in most European bond markets, reflecting the region’s greater exposure to soaring energy prices. The U.S. 10-year yield was lower by about two basis points near 4.27%, the lowest since mid-March, versus declines of at least 10 basis points for most European counterparts.

Short-maturity euro-zone and UK yields plunged as traders slashed wagers on interest-rate hikes by the European Central Bank and Bank of England.

Inflation expectations fell sharply Wednesday, spurring the bid in bonds. A proxy for euro area price growth over the next 10 years dropped to 2.1%. Swaps now imply a 30% chance that the ECB will hike rates by a quarter-point this month.