According to APP, Deutsche Bank strategists stated in a report that the US Treasury market will need to assess the extent of the damage to US inflation following the Middle East ceasefire. If the ceasefire persists, the surge in inflation will be viewed more as a temporary phenomenon, and the Deutsche Bank strategists indicated they expect the Federal Reserve to resume interest rate cuts in September. They also noted, "Furthermore, the potential impact of this war on Treasury issuance needs to be monitored, as Congress may allocate more funds to the military." The Deutsche Bank strategists anticipate that any increase in issuance will remain moderate and will primarily be financed through long-term funding, thus helping to avoid pressure on long-term yields.

The latest data shows that the US Consumer Price Index (CPI) rose to 3.3% year-on-year in March, a significant rebound from 2.4% in February. This was mainly driven by a sharp increase in energy prices, especially gasoline, which is directly related to supply chain disruptions during the Middle East conflict. If the ceasefire continues, the downward trend in oil prices has already begun to emerge, and market concerns about inflation are expected to gradually ease. This assessment by Deutsche Bank strategists echoes the recent adjustments made by several institutions to the Federal Reserve's policy path. Currently, the Federal Reserve's federal funds rate remains in the 3.5%-3.75% range, and the market generally expects September to be a key juncture for policy shifts. This timing is more cautious than the earlier prediction of June and is more in line with the gradual decline in inflation data.

The report further emphasizes that the ripple effects of a ceasefire on fiscal spending cannot be ignored. Defense spending has already increased during the conflict, and Congress may subsequently allocate additional budgets to support military reconstruction or related projects, leading to a moderate expansion in government bond issuance. However, Deutsche Bank strategists believe that this increase will primarily be concentrated in long-term bonds, spreading pressure by extending financing maturities and avoiding a concentrated shock to yields of 10 years and above. This path helps maintain the overall stability of the government bond market while providing necessary fiscal support for economic growth.

To clearly illustrate the policy and market impacts under a ceasefire scenario, the following table compares the key differences in expectations between scenarios of continued conflict and a sustained ceasefire:

This analytical framework not only reflects Deutsche Bank's keen grasp of geopolitical factors but also provides investors with a practical reference for assessing risk. Given the continued fragility of global supply chains, the sustainability of the ceasefire will be a key variable determining the path of inflation and the tightness of monetary policy. Deutsche Bank strategists remind the market that while short-term data fluctuations may be significant, long-term policy should be based on fundamental recovery, not one-off shocks.

Editor's Summary
A report by Deutsche Bank strategists highlights the multiple transmission effects of the Middle East ceasefire on the US macroeconomic environment. Temporary inflation assessments and expectations of a September rate cut provide the market with potential guidance for policy easing, while the assessment of a moderate increase in Treasury issuance mitigates the risk of conflict between fiscal and monetary policies. The ultimate outcome still depends on the stability of the ceasefire and subsequent economic data performance; all parties need to continue monitoring to maintain a dynamic balance.