The US-Iran ceasefire agreement shakes the market: oil prices sharply plummet + rate cut expectations re-ignite, US bonds see another "steep bull market".

The ceasefire between the US and Iran caused a sharp drop in oil prices, boosting market expectations for the Federal Reserve to cut interest rates again. As a result, US Treasury prices rose, with short-term bonds leading the way. During the Asian trading session on Wednesday, the yield on the US two-year Treasury note fell by 6 basis points to 3.73%, while the yield on the ten-year Treasury note dropped by 3 basis points to 4.26%. Crude oil futures prices plunged by 14%. The "bull steepening" in the US bond market occurred after the temporary ceasefire agreement between the US and Iran, with the core condition of Iran opening the Strait of Hormuz in exchange for the US suspending military actions. The prospect of easing the oil crisis boosted expectations that the Federal Reserve may further relax its monetary policy later this year. The possibility of a Fed rate cut is now more likely based on swap trading. The strategy of "bull steepening" in the US bond market refers to the sharp decline in short-term yields (such as 2-year maturities and below) due to increasing expectations of a Fed rate cut, while long-term yields (such as 10-30 year maturities) show limited declines but overall downward trend, leading to a rapid widening of the long-short term spread, making the yield curve steeper in the backdrop of a "rising prices/falling yields" bull market in US Treasury prices. Ken Crompton, head of interest rate strategy at National Australia Bank, said, "There is still room for further steepening in the bull market in the short term. The market may reassess expectations and consider that the likelihood of a Fed rate cut is higher than currently expected." Overnight index swap trading indicates a 60% probability of a Fed rate cut by the end of the year, compared to almost zero probability earlier this week. Before the US and Israel launched attacks on Iran, the market had expected the Fed to cut rates at least twice.