Bond traders are hedging against a potential near-term rate hike by the Federal
Reserve as the Iran conflict drives oil prices higher and stokes inflation
fears. Options tied to the Secured Overnight Financing Rate show demand for
protection against a hike within weeks, ahead of the April 29 meeting. Markets
have shifted from pricing multiple rate cuts to about a 50% chance of a hike by
year-end. Jeff Schuh of Constitution Capital said the trades reflect concern
over inflation risks and unexpected Treasury market volatility, though they
don’t represent the base-case outlook.
