Fed Rate Cuts Spark Rally: European Bonds Surge as Oil Tanks

Traders are betting big on a dovish Fed—and markets are already moving. European bonds catch a bid while crude gets crushed. Here’s the playbook.

The Rate Cut Domino Effect

Two projected Fed cuts in 2025 have bond bulls partying like it’s 2019. Meanwhile, oil traders—always the drama queens—are pricing in slower demand faster than you can say ''stagflation lite.''

Why Bonds Win When Fed Blinks

European debt markets smell blood in the water. With the Fed potentially pivoting before the ECB, yield hunters are piling into fixed income. Smart money? Or just another case of FOMO in a zero-conviction market?

Oil’s Icarus Moment

Black gold’s losing its shine as traders price in softer growth. Because nothing says ''economic confidence'' like energy markets front-running central bank decisions. Classic.

One thing’s clear: in today’s markets, you don’t trade fundamentals—you trade the Fed’s mood swings. Place your bets accordingly.

European bonds up, oil down as traders bet on two Fed rate cuts

On Thursday, European bond markets, especially UK government bonds, rose, and oil prices gave up about half of Wednesday’s jump. That helped power the US rally and pushed yields even lower.

By day’s end, traders betting on interest rates were fully expecting two-quarter-point rate cuts to the Fed’s main rate by the end of 2025. Those odds had fallen after the strong June 6 jobs report but bounced back once Wednesday’s inflation data came in below forecasts.

Economists at Pantheon Macroeconomics noted that tariffs imposed under the TRUMP administration could push up inflation later in the year. Still, they wrote, “the near-term trend remains favorable, enabling the Fed to signal next week that it still intends to begin easing policy again later this year.”

Treasury to sell 30-year bonds for the first time since May high

The Federal Open Market Committee meets next week for its fourth gathering of 2025. Policymakers are expected to keep the benchmark short-term rate at its current 4.25%–4.50 % range, where it has stood since December. When they were expecting two quarter-point rate cuts by year-end.

In the wake of the strong jobs figures, some had speculated that those projections might be scaled back to a single cut. Now, most Wall Street economists expect no action until a quarter-point reduction in December.

At 1 p.m. in New York on Thursday, the Treasury will auction 30-year bonds for the first time since the yield on that maturity hit 5.15% on May 22. That peak followed Moody’s decision on May 16 to strip the US of its top credit rating, citing deteriorating fiscal metrics.

“Americans, especially recent graduates, are worried about how hard it is to find a job,” said Heather Long, chief economist at Navy Federal Credit Union. “If layoffs worsen this summer, it will heighten fears of a recession and consumer spending pullback.”

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