US rates rose sharply on Tuesday as equities moved higher, leaving the S&P 500 just below its all-time high. US producer price inflation was lower than expected on the headline measure, and March core PCE is estimated at 0.26% month on month.
With few major releases due, attention is on official comments and scheduled Fed communications. Federal Reserve officials Barr and Bowman are due to speak, and the Fed’s Beige Book is set for release.
The Senate Banking Committee said Kevin Warsh’s nomination hearing will take place on 21 April at 10:00am EDT. Markets are also watching developments in the Middle East amid an ongoing ceasefire.
On Wednesday, Treasury International Capital (TIC) flows are expected to draw interest for clues on foreign holdings of US Treasuries in February.
With the S&P 500 approaching its all-time high near 6,200, we should consider strategies that benefit from this upward momentum. The market is betting that the upcoming core PCE inflation data will confirm a cooling trend, with forecasts holding around 0.26%. This makes buying near-term call options on major equity indexes a sensible way to participate in the current risk-on move.
However, we must remain cautious as we await the Fed’s Beige Book and comments from Governors Barr and Bowman. A hawkish surprise, particularly from a known inflation hawk like Bowman, could quickly unwind the recent rally in interest rates. Therefore, holding some protective put options on rate-sensitive instruments like Treasury bond futures is a prudent hedge against a shift in Fed sentiment.
The ongoing focus on the Middle East conflict introduces significant event risk that could spike volatility without warning. The CBOE Volatility Index (VIX) has dipped below 14, making VIX call options a relatively inexpensive form of portfolio insurance against a sudden market shock. We have already seen Brent crude futures swing 4% in the last week alone based on ceasefire headlines, showing how sensitive markets are to geopolitical news.
This situation brings to mind the market whiplash we saw in the third quarter of 2025, when a similarly soft inflation report was quickly overshadowed by hawkish forward guidance from the Fed. That event triggered a sharp market sell-off and reminded us how quickly sentiment can turn. A balanced derivatives book that can profit from calm but is protected from shocks is advisable.
This week, we will also monitor TIC flow data to see if foreign demand for US Treasuries is changing, which could impact rates. Additionally, Kevin Warsh’s nomination hearing on April 21st will be watched closely for any insights into the future direction of the Fed’s board. These factors, while secondary, will help fill in the broader market picture.
