---
title: "The situation in Iran triggers inflation concerns, bond market urgently withdraws interest rate cut bets"
type: "News"
locale: "zh-CN"
url: "https://longbridge.com/zh-CN/news/277697441.md"
description: "Due to inflation concerns triggered by the war with Iran, futures market traders have significantly lowered their expectations for a Federal Reserve rate cut, leading to a narrowing of interest rate futures spreads. The spread between the December 2026 and December 2027 contracts fell to -15 basis points, setting a new low. Investors' expectations for a rate cut have been forced to adjust, and the market needs to recalibrate its pricing logic. Meanwhile, the relevant spreads for the European Central Bank and the Bank of England also show signs of an increased probability of rate hikes. The U.S. Treasury market is similarly affected by inflation concerns, with Treasury yields remaining high and volatile"
datetime: "2026-03-04T01:07:02.000Z"
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  - [zh-CN](https://longbridge.com/zh-CN/news/277697441.md)
  - [en](https://longbridge.com/en/news/277697441.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/277697441.md)
---

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# The situation in Iran triggers inflation concerns, bond market urgently withdraws interest rate cut bets

According to Zhitong Finance APP, futures market traders are significantly lowering their expectations for interest rate cuts by the Federal Reserve, a shift driven by renewed inflation concerns stemming from the war with Iran. This change in expectations is directly reflected in the interest rate futures spread—markets are betting that soaring oil prices driven by the war may exacerbate inflationary pressures, making it more difficult for policymakers to lower borrowing costs this year, thus narrowing the interest rate futures spread.

In the United States, the spread between the December 2026 and December 2027 contracts tracking the Secured Overnight Financing Rate (SOFR) fell to -15 basis points on Tuesday, marking a new low for this cycle—the spread turned negative last week. This contrasts sharply with a few weeks ago when investors were focused on the deflationary effects of artificial intelligence and a cooling job market, pricing in multiple rate cuts within the year.

Bridger Kulana, a portfolio manager at Wellington Management, noted: "This is essentially a story of expectation adjustment playing out in both the oil market and the U.S. Treasury market—both markets had previously fully digested expectations for significant rate cuts by the Federal Reserve. We are currently in an environment where inflation remains persistently above policy targets, requiring the market to recalibrate its pricing logic—potentially needing to eliminate or significantly reduce the previously expected number of rate cuts, with adjustments possibly exceeding last week's market expectations."

On Monday, the trading volume of the spread between the December 2026 and December 2027 contracts hit a record high of 180,000 lots. Meanwhile, the relevant spreads tracking the European Central Bank and the Bank of England's policies also showed a similar trend—at one point on Tuesday, interest rate futures linked to the ECB's policy priced in a greater than 60% probability of a rate hike within the year, reflecting a warming market expectation for monetary policy tightening.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260304/1772582900139405.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Inflation concerns are also spreading to the U.S. Treasury market, pushing Treasury yields down for the second consecutive day—investors are accelerating the reduction of bets on multiple rate cuts by the Federal Reserve in 2026. As the most sensitive maturity indicator to monetary policy, the two-year U.S. Treasury yield approached its yearly high during the day, although it slightly retreated by the end of the day, it still maintained a high volatility trend overall.

At the same time, the recently closely watched U.S. dollar swap spreads have shown fluctuations in trading over the past few days, as investors weigh the potential fiscal impacts of long-term geopolitical conflicts. This trade bets that the difference between interest rate swaps and Treasury yields of the same maturity will widen, but currently, the long-term spreads have narrowed to their tightest level since August of last year. The reduction in corporate bond issuance and market deleveraging operations may also have a cumulative effect on recent spread trends.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260304/1772582930365493.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Molly Brooks, a U.S. interest rate strategist at TD Securities, pointed out: "I believe that the market volatility yesterday and today is largely driven by fiscal concerns triggered by the potential war with Iran, as evidenced by the continued narrowing of swap spreads." The flattening of the yield curve can be attributed to the market's expectation of the Federal Reserve reducing the intensity of its easing policies, which forms a logical closed loop with the rising inflation expectations triggered by soaring oil prices."

Here is an overview of the latest positioning indicators in the interest rate market:

As of the week ending March 2, JPMorgan's clients' direct long positions increased by 2 percentage points compared to the previous period, pushing the net long position to its highest level since December last year. Meanwhile, neutral strategy positions remained high, while short positions were simultaneously reduced by 2 percentage points.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260304/1772582947107176.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

## SOFR Options

In the past week, the SOFR June 2026 options market (including call and put options) saw a significant increase in risk exposure. Specifically, a large number of new opening trades emerged at the 96.4375 strike price, with notable fund flows including: constructing a SFRM6 96.4375/96.5625/96.75 call option tree combination, and a SFRM6 96.4375/96.5625/96.6875/96.8125 call option iron condor combination. At the same time, demand for the 96.50 strike price remained strong, with fund flow characteristics including: buying SFRM6 96.50/96.6875/96.8125 1x3x2 call option butterfly spread, and SFRM6 96.50/96.375 put option spread.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260304/1772582967575085.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Overall, due to the active trading of call and put options expiring in June 2026 around the 96.4375 strike price, this strike has become the hottest underlying for options expiring in March, June, and September 2026. Additionally, the open interest at the 96.50 strike price remains high, with last week's fund flows further boosting this level—one large trade of the SOFR June 2026 96.50/96.6875/96.8125 1x3x2 call option butterfly spread saw its price rise from $2 to $2.25, highlighting the market's ongoing speculation on this key price level.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260304/1772582983224769.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

## Treasury Option Premiums

Last week, the Treasury futures hedging option premiums briefly reached recent peaks, and then, impacted by the dual shocks of soaring oil prices on Monday and the unwinding of safe-haven fund flows from the end of May last week, yields significantly rebounded, causing option premiums to retreat from their highs. Nevertheless, the call option premiums across the full yield curve remain elevated—traders are hedging against the risk of rising Treasury prices (i.e., falling yields) at higher premiums, rather than protecting against the risk of falling Treasury prices, with the call option premiums for 10-year Treasury futures being particularly prominent ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260304/1772582997175888.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

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