Bitcoin and global equity markets have stabilized after an early-week sell-off and oil price spike, triggered by geopolitical conflict. Bond markets, however, are signaling caution as rising yields indicate renewed inflation concerns and dwindling bets on Federal Reserve rate cuts.
Bitcoin traded above $70,000, up nearly 10% for the week, after briefly climbing to nearly $74,000 following a weekend dip. Equity futures tied to the S&P 500 also recovered after hitting a multi-week low.
The initial market dip occurred as oil prices surged amid reports of Iran blocking oil tankers. Markets stabilized after U.S. naval escorts and political risk insurance were promised for tankers transiting the Strait of Hormuz.
Despite the recovery in risk assets, the bond market remains uneasy. The yield on the 10-year U.S. Treasury note has risen, and the two-year yield, sensitive to interest rate expectations, has jumped significantly.
This move higher in yields suggests traders are reassessing monetary policy as conflict-driven energy price spikes threaten to rekindle inflation. CME Fed funds futures indicate less than a 50-50 chance of two Fed rate cuts this year, a notable decrease from pre-conflict expectations.
Analysts note that the inflationary impact of oil shocks typically unfolds gradually, suggesting yields could remain elevated. Recent strong U.S. economic data, including expansion in the services sector and robust job creation, has also contributed to rising yields and scaled-back rate-cut expectations.
Future market volatility may depend on upcoming nonfarm payrolls and wage growth figures, which could further impact Fed rate cut expectations.