Sam Goldfarb

And so that's the dynamic that the Fed is concerned about.

But you also have these other measures of interest rate expectations, basically like interest rate futures.

And they also show that from before the war, people were expecting about two interest rate cuts this year.

Now they basically think that the Fed is likely to not raise rates at all and even have been pricing as high as 30 percent of a chance that the Fed would raise rates this year.

So far, signs that the war will continue have led to higher yields, sort of hopes that it'll end.

I've seen it called Hormuz hopes.

When there's Hormuz hopes, bonds have rallied.

But investors keep on telling me this sort of psychology could change, the analysis could change.

And even if the war continues, that people could start worrying more about its impact on economic growth, which actually could be good for bonds and cause them to rally.

And there are a lot of investors who are quite bullish on bonds right now and kind of expect them to rally eventually, whether the war goes on or not.

The higher quality, the investment-grade bonds, the yields that you get on them, the gap between those and the yields on ultra-safe U.S.

treasuries, those are the tightest spreads that we've seen in almost 30 years.

For more lower-rated bonds, it's the tightest spreads since 2007 or so.

That's just a sign of demand for these bonds because they're willing to accept these yields that are not that much higher than what you can get on government bonds.

And government bonds are essentially guaranteed to not default.

Even though the gap between these two yields on corporate bonds and treasuries is small, you're still getting a pretty high yield on corporate bonds relative to what you can get in other parts of the world.

Investors also think that maybe the Fed will keep cutting interest rates and that these yields will go down in the future, so they want to buy them now while they still can.

And they're relatively optimistic about the economy, and that makes them less concerned about potential defaults.

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