Is a rate hike really coming? US Treasuries "challenge" the Federal Reserve's interest rate ceiling

格隆汇 March 23｜As the oil price-driven inflation shock triggered by the Iran war caused the market's previous widespread expectations for a Federal Reserve rate cut to fall through, bond traders are scrambling to devise new strategies. Last week, as major central banks issued warnings about inflation, short-term yields soared, and traders completely erased expectations for further Fed easing in 2026, strategies betting on rate cuts suffered a comprehensive blow. By last Friday, as global benchmark crude oil prices remained at their highest levels since 2022, market sentiment underwent a dramatic reversal—traders even believed the probability of the Fed raising rates before the end of October was as high as 50%. Meanwhile, last week, the yield on two-year U.S. Treasury bonds broke through 3.75%—piercing the upper limit of the current federal funds rate target range set by Fed officials.