A week ago, bond traders had Fed rate-hike odds at roughly 60-40.
Now they're calling it close to a sure thing - and oil is the reason.
Bond Markets Reprice The Fed
Treasuries fell hard on Wednesday, sending the 10-year yield - the rate the US government pays to borrow for a decade - up to 4.48% in their biggest drop in more than two weeks.
Bond prices fall when yields rise, so a higher yield means investors are dumping Treasuries.
Why? Two reasons stacked on top of each other: oil pushed past $98 a barrel, and US jobs data came in hot.
Swaps tied to Fed meeting dates - basically bets on what the Fed will do next - now show an 85% chance of a quarter-point rate hike by year-end, up from 60% last week.
Traders have also pulled their full-hike timeline forward to January 2026, from March.
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Oil Pushes Inflation Higher
US forces intercepted Iranian missiles and drones aimed at neighboring states, with the ceasefire fraying and the Strait of Hormuz - the shipping channel that carries a fifth of the world's oil - unlikely to reopen any time soon.
That's why Brent crude is back above $98 for the first time this month.
High oil prices feed straight into inflation, and April's reading already hit 3.8% - the fastest in three years - driven by rising gas prices.
May's number, out next week, is forecast at 4.2%.
The Fed cuts rates when inflation cools and hikes when inflation runs hot. Right now, inflation is doing the opposite of cooling.
The labor market isn't helping either, with April job openings hitting their highest level in almost two years. That tells the Fed the economy can probably handle higher rates without breaking.
What To Watch
Three data points land this week: ADP employment and ISM services later today, then non-farm payrolls - the big monthly jobs number - on Friday.
Two Fed voters also speak today - Michael Barr and Lorie Logan - after Cleveland Fed President Beth Hammack said the central bank may need to act soon.
If Barr and Logan echo her, that 85% gets a lot closer to 100.
The Fed meets June 17, and until then every data point gets read as a vote.
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