Risk assets are recovering from the sell-off caused by sharply rising oil prices, while rising bond yields are putting pressure on expectations of a Fed interest rate cut.
Bitcoin and global stock markets have stabilized after the sell-off earlier in the week, along with a surge in oil prices Capital by the escalating military conflict between the US, Israel, and Iran. However, bond markets are signaling caution as rising yields suggest renewed inflation concerns and expectations of a Fed interest rate cut are diminishing.
BTC, the cryptocurrency with the largest market Capital , traded above the $70,000 mark on Friday, up nearly 10% for the week. The price had briefly climbed to nearly $74,000 on Wednesday after falling to around $65,000 at the end of the previous week as geopolitical tensions rocked the market.
This recovery was also evident in the Futures Contract market. Contracts pegged to the S&P 500 fell to a multi-week low of 6,718 points on Tuesday before recovering to around 6,840 points at the time of writing.
The initial "risk-off" occurred when oil prices surged following reports that Iran had blocked oil tankers from passing through the Strait of Hormuz – a crucial choke point for global crude oil supply. The market then stabilized when the U.S. quickly allayed concerns by promising to provide naval escorts and political risk insurance for oil and gas tankers transiting the region.
However, the bond market remains apprehensive.
The yield on 10-year U.S. Treasury bonds has risen for four consecutive days, from 3.93% to 4.15%. Bond prices move inversely to yields. Meanwhile, the yield on 2-year bonds – which is more sensitive to interest rate expectations – has risen from 3.37% to nearly 3.60%.
The rise in yields suggests that traders are reassessing the outlook for monetary policy as the energy price shock caused by the conflict could reignite inflationary pressures.
According to Fed interest rate Futures Contract on CME, investors now assess the probability of the Fed cutting rates twice, each by 25 basis points, this year to be less than 50%, a sharp drop from nearly 80% before the conflict erupted.
“The interest rate market is showing signs of strain in this recovery,” Bryan Tan, a trader at digital asset market maker Wintermute, said in an email, referring to the rise in yields.
“The conflict between a still-strong economy (ISM Services at 56.1, ADP +63,000 compared to forecast +50,000) and an inflationary energy shock is often the context that forces the Fed to maintain its stance for a longer period. The formal presentation of Warsh’s nomination to the Senate this week also adds another layer of hawkish uncertainty,” Tan added.
Some observers suggest that the inflationary impact of the oil price shock typically spreads gradually across the global economy, indicating that yields may remain high for the next few weeks and potentially limit the upward momentum of risky assets such as stocks and cryptocurrencies.
“Following major geopolitical shocks, oil prices typically rise gradually over several weeks. The Medium model suggests oil usually increases 20–30% in about 60 days after the shock,” analyst Jack Prandelli explained on X. “The market often underestimates the initial phase of supply risk. The real surge usually occurs when physical disruptions begin to appear in flows and inventories.”
Recent strong US economic data has also contributed to rising yields and narrowed expectations for interest rate cuts. Data released on Tuesday showed that US service sector activity continued to expand in February, with the ISM index rising to 56.1. The ADP private sector payroll report showed 63,000 new jobs created in February, the highest level since July 2025.
Market attention is currently focused on the nonfarm payrolls report and wage growth data to be released on Friday. If the figures are higher than expected, expectations of a Fed interest rate cut could continue to weaken, adding further volatility to financial markets.
