Oil Prices Fall, US Treasuries Rally; Market Consensus Expects Fed to Hold Rates in March

Xinhua Finance, Beijing, March 17 — The easing of international oil prices has alleviated market concerns that energy prices could drive inflation. The U.S. bond market experienced a long-awaited rally on Monday (March 16), with yields generally falling. The 10-year U.S. Treasury yield dropped 5.68 basis points to 4.2199%; the 2-year yield fell 3.94 basis points to 3.6774%; and the 30-year yield declined 4.36 basis points to 4.8603%.

On the same day, West Texas Intermediate crude futures for April delivery fell $5.21 to close at $93.50 per barrel, down 5.28%. London Brent crude futures for May delivery declined $2.93 to $100.21 per barrel, down 2.84%.

Phil Flynn, senior market analyst at Price Futures Group, said that U.S. President Trump is seeking to encourage other countries to take measures to reopen the Strait of Hormuz. Trump stated on the evening of the 15th that the U.S. is discussing with other nations to jointly ensure the safe navigation through the Strait of Hormuz.

According to The Wall Street Journal on the 15th, the U.S. government previously held a series of meetings, where Energy Secretary Jennifer Granholm, Interior Secretary Deb Haaland, and several oil company executives discussed the current situation’s impact on the economy. These executives believe that the energy market is affected by tense tensions, and considering that U.S. oil production is unlikely to increase significantly in the short term, the only way to resolve market turmoil is to restore passage through the Strait of Hormuz. ExxonMobil CEO Darren Woods warned during the meeting that market volatility could lead to further oil price increases and supply shortages of refined products.

Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, said, “As oil prices remain high and risk assets begin to recover, there are some initial signs of stabilization in the U.S. bond market. Last week, market expectations for rate cuts were adjusted quite dramatically, and the recent stabilization of oil prices may cause investors to pull back some of the excessive repricing.”

The Federal Reserve will hold its Federal Open Market Committee (FOMC) meeting from March 17 to 18. Mainstream institutions and market analysts generally predict that the Fed will keep rates steady, maintaining the benchmark overnight rate in the 3.50%–3.75% range.

Deutsche Bank analysts stated in a report on Monday that their economists expect the Fed to emphasize “rising geopolitical uncertainties” at the meeting. “Chair Powell may highlight that recent events are mainly transmitted through financial conditions—especially oil prices. However, our economists currently believe he will not suggest any substantial change to the short-term policy outlook.”

Amid recent volatile economic data and escalating geopolitical tensions, market expectations for rate cuts have collectively shifted downward. Futures traders now expect the Fed to cut rates only once or twice this year, with the first cut not until September— a stark contrast to the market’s July rate cut expectations in February. This adjustment is primarily driven by the resurgence of inflation risks, which has limited the Fed’s room for early easing.