Traders Hedge Risk That War Spurs Fed to Hike Rates Within Weeks

Bond traders, spooked by the prospect of the conflict in Iran escalating further, are looking to hedge against worst-case war outcomes that could force the Federal Reserve to raise interest rates in coming weeks.

In the options market that tracks Fed policy, demand has emerged for wagers tied to the Secured Overnight Financing Rate that align with an interest rate increase as soon as within two weeks’ time. These trades would pay off if the bond market moves to ramp up rate hike bets well ahead of the April 29 policy meeting.