A US-Iran agreement prompted traders to pare Federal Reserve tightening
expectations and sent US Treasury yields lower across the curve, with the short
end—most sensitive to policy—falling the most. Interest-rate swaps price roughly
a 60% chance of a 25bp Fed hike before December, down from about 80% last
Friday. The move reflects market optimism that resolving the Iran conflict will
help reopen the Strait of Hormuz and put downward pressure on oil. Some
rate-market shorts are likely being covered, said Matthew Haupt, hedge fund
manager at Wilson Asset Management in Sydney. Central banks, he added, can
afford a more patient stance and may look through near-term inflation.
