TD Securities analysts note that US rates rallied as markets stabilised, with attention on Fed policy expectations and geopolitical headlines. While hike odds have risen, they pushes back, arguing the hawkish outcome is more likely a prolonged pause. The upcoming 20-year bond reopening and developments in the Middle East are seen as key drivers for the US Dollar and Treasuries.

Hike odds rise but TD Securities favours longer pause

"Rates rallied on Monday as markets found some stability with swap spreads widening sharply. Bessent spoke in the morning, saying that if the China visit is postponed, it would be because Trump wanted to rather than Hormuz."

"Media reports suggested that President Trump is looking for a "month or so" delay to his China trip. Trump later urged another rate cut and said that the Strait of Hormuz would be sorted out soon, with the war wrapping up but "not this week.""

"We published a note on the odds of a Fed hike that have increased in recent weeks. We push back on the narrative that the Fed will hike, as we expect the hawkish scenario to be a longer pause."

"On Tuesday, the 20y bond reopening will be watched for signs of any cracks in demand. Markets will be largely focused on news coming from the Middle East, which have continued to outweigh data releases."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)