Report Industry Investment Rating - Not provided in the given content Core View of the Report - The impact of the US-Israel-Iran conflict on US inflation may not be as significant as the market has priced. The report maintains the expectation that the Federal Reserve will cut interest rates twice in 2026, totaling 50 basis points. The current correction in the US Treasury market provides a configuration window for Chinese dollar-denominated bonds [1][9] Summary by Relevant Catalogs Re-inflation Expectations Drive a Sharp Rise in US Treasury Yields - The conflict in the Middle East has led to concerns about re-inflation, causing a rapid increase in US Treasury yields. Since the outbreak of the US-Israel-Iran conflict, the yields of key-term US Treasuries have fully reversed all the gains since the beginning of 2026. The 2-year US Treasury yield has risen to 3.8%, reaching its highest level since July last year. The market's expectation of the Federal Reserve's interest rate cuts has reversed, and it is now expected that the Fed may not cut rates this year and may even raise them [2] - The current tense situation in the Middle East shows no sign of easing. The market is worried that the conflict may last longer, driving up oil prices and strengthening expectations of re-inflation and changes in the monetary policy path. Fed Chairman Powell's hawkish remarks have further increased the pressure on the US Treasury market [4] The Impact of the US-Israel-Iran Conflict on Inflation May Not Be as Large as the Market Pricing - The impact of the obstruction of navigation in the Strait of Hormuz on global inflation may not be as large as the market has priced. The Russia-Ukraine conflict caused a more extensive and long-lasting global inflation shock, while the US-Israel-Iran conflict mainly affects inflation expectations through the shock to global oil and gas supplies caused by the obstruction of navigation in the Strait of Hormuz. The impact of the US-Israel-Iran conflict on global inflation is expected to be more limited in scope and duration compared to the Russia-Ukraine conflict [7] - In February 2026, the US Supreme Court ruled that the large-scale global tariff policy implemented by the Trump administration was illegal, leading to a marginal decline in US tariffs. The subsequent temporary tariffs may face more legal challenges and uncertainties, and the current downward trend in tariffs may offset some of the inflationary impact caused by rising energy prices [8] The Correction in US Treasuries Brings Allocation Opportunities for Chinese Dollar-Denominated Bonds - Due to concerns about re-inflation caused by the oil supply shock and the hawkish tone of the Fed's March interest rate meeting, the interest rate futures market no longer expects the Federal Reserve to cut interest rates in 2026. Since the outbreak of the US-Israel-Iran conflict at the end of February, the 2-year US Treasury yield has risen by more than 40 basis points to around 3.8% [9] - The correction in the US Treasury market has also led to an adjustment in Chinese dollar-denominated bonds. Since the US-Israel-Iran conflict at the end of February, the Chinese dollar-denominated bond index has significantly declined. The Bloomberg Barclays Chinese dollar-denominated bond total return index has fallen by 1.0%, and the yield to maturity has risen by about 38 basis points to 5.13%. The market adjustment provides an allocation opportunity for Chinese dollar-denominated bonds [9]