The Middle East war exacerbates inflation concerns in the United States, and bond traders reduce interest rate cut bets
Traders bet that the surge in oil prices driven by war could exacerbate inflation, making it more difficult for policymakers to lower borrowing costs this year. In the United States, the spread between the December 2026 and December 2027 contracts tracking the Secured Overnight Financing Rate (SOFR) fell to negative 15 basis points on Tuesday, marking a new low for this cycle. This spread turned negative last week. A few weeks ago, investors were also focused on the deflationary impact of artificial intelligence (AI) and the cooling job market, at which point the market had priced in several rate cuts by the Federal Reserve this year
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