U.S.-Iran Cease-Fire Sinks Oil, Kills Rate-Hike Bets
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- Brent crude fell 13.5% to $94.50 a barrel and WTI dropped 14% to $96.45 after the U.S.-Iran cease-fire included reopening the Strait of Hormuz, which Tehran had effectively closed following the Feb. 28 U.S. and Israeli attack.
- CME FedWatch data shows the implied probability of a Federal Reserve rate hike by end-2026 collapsed from 11.7% at the start of the week to just 0.8% by early Wednesday, though traders still see little chance of a cut this year.
- U.S. Treasury yields fell sharply, with the 10-year down 6 basis points to 4.240% and the 2-year down 7.5 basis points to 3.723%, both the lowest in roughly three weeks, as investors moved back into bonds.
- European Central Bank rate-rise expectations remained in place — a 95% chance of a move from 2% to 2.5% by December per LSEG — but German 10-year bund yields plunged 16.4 basis points to 2.992% as Dutch TTF natural gas fell 17%.
- Bank of England rate-hike bets were cut to just over one 25-basis-point increase from nearly four at the conflict's peak, with the UK 10-year gilt yield dropping 19 basis points to 4.645%.
- Bank of Japan traders are nearly evenly split on an April 28 rate decision, but LSEG data shows a 91% chance of two hikes by year-end; the 30-year JGB yield fell 15 basis points to 3.60%.
- Daniela Hathorn of Capital.com warned that even if the cease-fire holds, infrastructure damage, higher shipping and insurance costs, and structural energy pricing shifts mean the shock will have a 'long tail' feeding through to inflation, growth, and corporate earnings.
Why it matters: The Fed's end-2026 hike probability collapsed from 11.7% to 0.8% in a single session, and BOE bets shrank from four hikes to one, buying central banks visible breathing room. But Friday's March CPI will be the first real test of how much the oil shock already fed through to consumer prices, and Capital.com's warning of a 'long tail' from infrastructure damage means the bond rally could reverse quickly if the cease-fire falters.
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