TD Securities analysts report that US rates rallied as markets stabilized, with swap spreads widening sharply on Monday [1]. The focus remains on Federal Reserve policy expectations and geopolitical developments, particularly those related to the Middle East [1]. Although recent weeks have seen an increase in the odds of a Fed rate hike, TD Securities pushes back against this narrative, suggesting that the more likely outcome is a prolonged pause in rate changes rather than a hawkish move [1].
President Trump was cited in media reports as considering a 'month or so' delay to his China trip, with TD Securities noting that if the visit is postponed, it would be due to Trump's decision rather than events in Hormuz [1]. Trump also called for another rate cut and commented that the situation in the Strait of Hormuz would be resolved soon, though the war would not end 'this week' [1].
The upcoming 20-year bond reopening on Tuesday is highlighted as a key event, with market participants watching for any signs of cracks in demand [1]. TD Securities emphasizes that ongoing news from the Middle East continues to outweigh domestic data releases in influencing US Dollar and Treasury movements [1].
CONCLUSION
TD Securities maintains that despite rising odds of a Fed rate hike, a longer pause is more likely as markets stabilize and geopolitical risks persist. The 20-year bond reopening and developments in the Middle East are expected to be significant drivers for US financial markets in the near term. Market participants remain focused on these factors rather than domestic economic data.