The market is experiencing panic betting; if the war escalates, the Federal Reserve may urgently raise interest rates within weeks

According to market news, bond traders are panicking over the possibility of further escalation in the Iran conflict and are seeking to hedge against the worst-case scenario of war consequences—namely, that the Federal Reserve may be forced to raise interest rates in the coming weeks.

In the options market tracking Federal Reserve policy, demand for bets linked to the Secured Overnight Financing Rate (SOFR) has emerged, corresponding to scenarios of interest rate hikes as early as within two weeks. If the bond market significantly raises interest rate hike expectations before the Federal Reserve policy meeting on April 29, these trades will profit. This surge in hedging demand for emergency rate hikes marks a sharp reversal in market sentiment.

Jeff Schuh, head of the rates department at Constitution Capital, stated that while the latest bets do not reflect the market's baseline scenario, they do indicate growing concerns: rapidly rising inflation will pose risks to investors who have been long on U.S. Treasuries in recent months. Currently, the interest rate swap market only accounts for a 3 basis point hike at the April 29 policy meeting, with a 12% probability of a 25 basis point increase.