Negotiations between the US and Iran encountered unexpected obstacles, with US bonds being sold off and oil prices soaring. Market bets on the possibility of the earliest rate hike by the Federal Reserve in October have increased to 50%.

Due to the deteriorating prospects for peace talks between the United States and Iran, global financial markets experienced significant volatility on Monday. The market is concerned that escalating tensions in the Middle East could push up energy prices and exacerbate inflationary pressures in the United States. As a result, US Treasury bonds were sold off, yields rose across the board, and traders further increased their expectations of future interest rate hikes by the Federal Reserve. On that day, the US Treasury bond market, with a size of 31 trillion US dollars, saw a decline, with the benchmark 10-year US Treasury bond yield rising by about 6 basis points to close to 4.5%. At the same time, international crude oil prices surged by over 5%, becoming a key factor driving pressure on the bond market. The yield on the 2-year US Treasury bonds, which are most sensitive to monetary policy expectations, also rose by about 6 basis points to reach 4.07%. Earlier, Iran's semi-official news agency Tasnim reported that Tehran would suspend communication with Washington in protest against recent Israeli actions. This news quickly sparked concerns in the market about the further deterioration of US-Iran relations. As geopolitical risks intensify, investors are beginning to reassess the Federal Reserve's future interest rate path. The interest rate swap market indicates that traders have fully digested the expectation that the Federal Reserve will raise rates at least once before March 2027, while the probability of a rate hike as early as October this year has increased to 50%. In recent weeks, US Treasury bond prices have been rising due to the widespread optimism in the market that the US and Iran are likely to reach an agreement, which would lead to the reopening of the Strait of Hormuz. As a strategic waterway for global energy transportation, the Strait of Hormuz handles a considerable proportion of the world's oil and liquefied natural gas shipments. Improved shipping conditions would ensure energy supply, and oil prices and inflationary pressures would also be expected to ease. However, the latest news has cast a shadow over this optimistic outlook. Analysts point out that if negotiations between the US and Iran reach a deadlock, international oil prices could remain high for a longer period, further pushing up inflation levels in the US and forcing the Federal Reserve to maintain a more hawkish monetary policy stance. Gennadiy Goldberg, head of US rate strategy at TD Securities, said, "Over the past week, the market's expectations for a US-Iran agreement have been very optimistic, even assuming that an agreement has already been nailed down. This has made the market exceptionally sensitive to any negative news, especially today's news about Iran ceasing communication with the US." Market participants believe that the developments in US-Iran relations and the changing situation in the Middle East in the coming weeks will be important variables affecting the global energy market, the trajectory of US inflation, and the outlook for Federal Reserve policy.