The strait reopened for less than a day before closing again; short-term risks are rising but the market remains restrained. Focus on the upcoming hearings.

Middle East conflict update: Negotiations take a dramatic turn as the strait reopens for less than 24 hours before being blocked again.

On April 17, Trump and Iran's foreign minister jointly announced the full restoration of navigation through the Strait of Hormuz, while Israel simultaneously ceased military operations in Lebanon. However, within 24 hours, the situation deteriorated rapidly. Iran announced that due to the US violating the ceasefire agreement and failing to lift the blockade on Iranian ships and ports, it has decided to close the Strait of Hormuz again until the US fully lifts the blockade. Additionally, the US-Iran ceasefire agreement will expire on April 21, and according to reports from Iran’s state news agency (IRNA), both sides may arrange new peace talks before the expiration date, though no clear consensus has emerged so far.

Short-term outlook: Blockade in the Strait reappears, localized risks remain

The US-Iran negotiation process has once again taken a dramatic turn, with the Strait reopening only to be quickly shut down again, which remains within our previously anticipated negotiation pattern. On April 20, Trump unilaterally announced the dispatch of a team for a second round of negotiations, but Iran has yet to confirm, causing a rapid shift in market sentiment. According to the latest trading data from the prediction market platform Kalshi, the market's probability of the Strait of Hormuz returning to normal by May 15 has significantly dropped from a peak of 60% to 37%. (Source: Kalshi Prediction Market, 2026/4/19)。

In terms of the markets, this morning (April 20) in the Asian session, overall performance remained relatively restrained, with limited declines in stocks, indicating that while investors are disappointed with the progress of negotiations, there hasn't been any panic selling yet, and the situation is still in a wait-and-see phase. It will be crucial to closely observe whether there will be further contact or indirect negotiations between the two sides before the ceasefire expires. However, with less than 24 hours before the trust mechanism fell apart and Trump once again adopting a tough stance, financial markets in the short term are likely to trade based on news flow, and localized risks remain high.

Long-term analysis: Even if peace talks remain hopeful, long-term trust mechanisms face challenges; controlled outcomes would be the best development

Although both parties reached a consensus last weekend on reopening the Strait of Hormuz, the foundation of trust remains very fragile. The US continues to monitor and block Iranian vessels at sea, reflecting its strong containment intentions, while Iran finds the conditions proposed by the US difficult to accept. Even though Iran showed some flexibility in closed-door meetings and was willing to discuss the opening of the Strait and the handling of nuclear materials, from the current developments, core differences have not truly narrowed. Even if negotiations can resume in the future, establishing a long-term stable trust mechanism will remain highly challenging. A more realistic expectation is that temporary ceasefires or partial compromises may be achieved through multiple rounds of tug-of-war in the short term, while a comprehensive and balanced long-term peace agreement will require a longer period of negotiation and patience.

Additionally, from the perspective of the critical timeline, the US is facing pressure from the War Powers Resolution (WPR).

According to legal requirements, military actions without congressional approval cannot exceed 60 days but can be extended to 90 days (including withdrawal periods). Based on this calculation, the end of April to May will be an important time node for whether US troops will withdraw. However, considering Trump’s past governing style, White House staff will likely seek other legal tools or pragmatic interpretations to bypass restrictions and maintain a military presence.

Investment Perspective: Leverage the advantage of short-term bonds, focus on the long term, and stabilize your portfolio.

Facing the rapidly changing situation in the Middle East, investors should maintain a long-term strategic asset allocation mindset while moderately capitalizing on opportunities presented by short-term market fluctuations. However, they should avoid over-speculating or banking on the outcome of a single event, focusing instead on steady positioning. Prior analysis has already pointed out that bond markets have generally come under pressure recently, mainly due to rising oil prices boosting inflation expectations. However, as the market quickly priced in these factors, we observed that the 1-year forward OIS rate (1Y1Y OIS) one year out has moved higher, approaching the upper limit of the Federal Funds Rate benchmark, providing technical support to front-end bonds and showing that market concerns about US interest rate hikes have eased somewhat. In contrast, the European and UK central banks turned more hawkish in their rate hike rhetoric in March, while the Fed, bearing the dual mandate of employment and controlling inflation, has shown more cautious policy adjustments and greater operational flexibility, responding gradually based on economic data rather than rushing into tightening.

It is worth noting that this Tuesday (April 21), the Senate Banking Committee will hold a confirmation hearing for Kevin Warsh, Trump's nominee for the next Federal Reserve Chair. This hearing is less than a month away from the end of current Chair Powell's term (May 15), and the market will pay close attention to Warsh's statements on interest rate policy, inflation control, and the independence of the Federal Reserve. Considering the above, given the uncertainties surrounding Middle East geopolitical risks and changes in Fed personnel, we recommend that investors continue to use short-term bonds as a core hedging position: effectively managing interest rate volatility and geopolitical risks while maintaining relatively stable returns, serving as a buffer and foundational element for overall asset allocation and long-term positioning.

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