Traders are betting that the Federal Reserve may be forced to raise interest rates in the coming weeks.

Golden Finance reports that on March 27, bond traders are panicking over the potential escalation of the Iran conflict and are seeking to hedge against the worst-case scenario—namely, the Federal Reserve being forced to raise interest rates in the coming weeks.

In the options market tracking Federal Reserve policy, demand for bets linked to the secured overnight financing rate (SOFR) has emerged, corresponding to scenarios where rate hikes could occur within two weeks. If the bond market significantly increases rate hike expectations before the Federal Reserve’s policy meeting on April 29, these trades could profit.

This surge in hedging demand for emergency rate hikes signals a sharp reversal in market sentiment. Just a month ago, the market expected at most three 25-basis-point rate cuts by the end of this year. Since the outbreak of war on February 28, swap market traders have begun to price in about a 50% chance of rate hikes before December, risking further repricing of short-term U.S. Treasuries.

Jeff Schuh, head of the interest rate division at Constitution Capital, said that while the latest bets do not reflect the market’s baseline scenario, they do indicate growing concern: rapid inflation increases could pose risks to investors who have been long U.S. Treasuries in recent months.

Schuh noted that as oil prices surge, raising fears of renewed inflation, traders have closed large long positions in U.S. Treasury futures. The sell-off in SOFR futures and the upward movement of the entire U.S. Treasury yield curve caught many large funds off guard. He pointed out that for funds seeking to manage interest rate risk, such trades “are a cost-effective stopgap that can make the risk of liquidation seem more manageable in 90% of cases.”