Traders no longer expect the Federal Reserve to cut interest rates in 2026, and may even "hedge" rate hikes.

The prices of US Treasury bonds fell, and after the Bank of England announced it was prepared to take action to address inflation, traders no longer believe that the US will cut interest rates this year. This move has led to an increase in the yields of bonds of all maturities, with the two-year US Treasury bond yield, which is most sensitive to changes in Fed policy, rising by 13 basis points to 3.9%. Bond traders have reversed their expectations of a rate cut in the US this year, and some are even preparing for possible rate hikes in the coming months as a hedge. Tom Di Galoma, Managing Director of the Mischler Financial Group, said, "All of this is being driven by the interest rate decisions of the Bank of England, as the market currently expects the bank to raise rates by 50 basis points in 2026. The European bond market is steeply declining, which is also pushing up yields in the US." He pointed out that fund flows are determined by a lack of buyers, "mainly due to selling behavior," and that market sentiment is mainly influenced by expectations of prolonged conflict. "It is currently believed that this Iran war may last for months rather than weeks."