US bond trader lowers bet on Fed rate hike in 2026 amid market hopes for peace agreement.

With the market's optimistic sentiment towards the end of the war in Iran, as the US Treasury market closes this week, traders are betting that the Federal Reserve will raise interest rates early next year. Friday afternoon, rate swap trading shows that traders currently expect a 100% chance of a 25 basis point rate hike by January 2027; they had previously bet on a hike this year. This shift comes as data shows US core inflation accelerated last month at a relatively mild pace, US crude oil prices fell below $85 per barrel, and US President Donald Trump claimed progress in reaching a peace agreement with Iran. "The signs that the Strait of Hormuz may reopen and the drop in oil prices have been key narratives driving the market," said Dhiraj Narula, US rate strategist at HSBC Securities. "These factors have somewhat delayed expectations for the timing of a rate hike."