Interest rate swaps reflect growing bets on Federal Reserve tightening amid persistent inflation and economic strength.
Financial markets now assign an over 80% probability that the Federal Reserve will raise interest rates by the end of 2026. The shift follows sustained inflation concerns and signs of resilience in the U.S. economy, which have tempered expectations for near-term rate cuts.
Earlier this year, traders had priced in multiple rate reductions for 2024 and 2025, but recent data has prompted a reassessment. The Fed’s last policy meeting signaled a cautious approach, with officials emphasizing data dependency amid mixed economic signals.
The repricing has contributed to volatility in bond markets, with yields on longer-dated Treasuries rising in recent sessions.