According to APP, Mitch Reznick, head of fixed income at Federated Hermes, noted in a recent report that the market now expects the Bank of England and the European Central Bank to each raise interest rates up to three times, "a remarkable shift in just a few weeks." Market data platforms also indicate that the market is currently priced in expectations of about half a rate hike by the Federal Reserve this year.

Mitch Reznick emphasized that "the sell-off at the front of the yield curve has led to a sharp flattening of the bear market," meaning that short-term bond yields have risen significantly faster than long-term bond yields. He further stated that concerns about inflation and the resulting central bank interest rate activity appear to have outweighed the impact of rising geopolitical risks against the backdrop of the US-Iran conflict.

Latest data shows a dramatic shift in policy expectations among major central banks globally: the Middle East conflict has driven up energy prices, increasing the risk of imported inflation, and the market is rapidly shifting from expectations of easing to pricing in tightening. The Bank of England's current policy rate remains at 3.75%, the European Central Bank's deposit rate is 2.0%, and the Federal Reserve's federal funds rate range is 3.50%-3.75%. In the short term, the yield on 10-year UK government bonds has risen to approximately 4.92%, indicating that the bond market is accelerating its pricing in interest rate hikes.

The following is a comparison of the latest interest rate hike expectations of major central banks in 2026:

Mitch Reznick's views are highly consistent with the current market consensus. In his recent fixed income outlook, he has repeatedly emphasized that uncertainty about the inflation path has become the dominant factor. Although geopolitical events have brought short-term disturbances, the continued rise in energy prices has directly impacted consumer and business costs, forcing central banks to reassess the interest rate trajectory.

The flattening of the yield curve in this bear market reflects a rapid reaction in the short term to expectations of interest rate hikes. Investors are selling short-term bonds, pushing up front-end yields, while long-term yields are suppressed by expectations of slowing economic growth, resulting in a significant narrowing of spreads. This dynamic not only amplifies bond market volatility but may also spill over into the stock and currency markets: currencies such as the yen and euro may experience short-term easing pressure, but financing costs in emerging markets may rise in the short term.

However, expectations are not monolithic. If the Middle East conflict eases rapidly or energy prices fall, the central bank's interest rate hike path may be adjusted again. Investors need to continue to monitor the Bank of England's April meeting, the European Central Bank's policy signals, and the Fed's dot plot updates, while also paying attention to global inventory and supply chain data.

Editor's Summary : The rapid reversal in central bank interest rate hike expectations reflects the decisive impact of inflation risk on monetary policy, and the flattening of the yield curve further confirms the market's accelerated pricing of short-term tightening. Global bond market volatility is likely to remain high in the short term, while the medium- to long-term trend will still depend on the actual path of inflation and the evolution of the geopolitical situation. Market participants should maintain flexible asset allocation and closely monitor marginal policy changes.