US Treasury prices climbed as oil markets retreated following a pause in American military strikes against Iran, giving bond investors a brief window of relief. But the celebration comes with an asterisk: traders are still pricing in roughly a one-in-three chance that the Federal Reserve hikes rates at its next meeting.

What’s driving the move

The US pause in strikes against Iran removed the most immediate catalyst for an oil price spike, and Treasury prices responded by moving higher, with yields falling correspondingly.

Prior to this de-escalation, the bond market had been under significant pressure. Two-year Treasury yields had surged above 4.21%, hitting multi-month highs as earlier oil price spikes stoked fears of persistent inflation. Those yields have since retreated as the geopolitical premium baked into energy markets started to deflate.

Market pricing still reflects approximately a 36 to 38 percent probability of a Fed rate hike at the upcoming policy meeting. The Fed itself has acknowledged the inflation risks tied to Middle East oil shocks alongside strong domestic demand factors, according to recent meeting minutes.

The crypto connection

Bitcoin has shown notable sensitivity to both oil price movements and shifts in Treasury yields throughout this period of geopolitical volatility. During de-escalation scenarios between the US and Iran, Bitcoin saw price fluctuations pushing toward $65,000 and above, as risk appetite improved across markets.

What investors should watch

The pessimistic scenario is a resumption of US-Iran hostilities. Oil spikes back up, inflation expectations re-accelerate, and that 36 to 38 percent rate hike probability starts climbing toward 50 percent or beyond. In that world, the two-year yield pushes back above 4.21% and potentially higher, putting pressure on everything from growth stocks to Bitcoin.

For crypto-native investors, the practical takeaway is to watch the two-year Treasury yield as a real-time barometer of rate hike expectations. Monitoring oil prices, particularly Brent crude, provides an early warning system for the inflation dynamics that ultimately drive Fed decision-making.