Investors are worried that the Middle East conflict will cause inflation to rise again, and the market is no longer fully betting on the Federal Reserve cutting interest rates this year.

Bond traders are no longer fully pricing in expectations of a Federal Reserve rate cut in 2026. Interest rate swaps linked to the Fed's policy meeting date showed traders on Thursday expecting only a 24-basis-point cut this year, less than the 25-basis-point needed for a full rate cut, compared to expectations of around 30 basis points Wednesday evening. This shift comes amid a continued decline in U.S. Treasuries, with the yield on the two-year Treasury note, most sensitive to Fed policy changes, rising 4 basis points to near 3.70%. Treasuries faced pressure this week as investors worried that the Middle East conflict would continue to push up energy prices, leading to renewed inflation. (Jinshi)