Fixed Income & Equities Markets Week in Review

Three weeks into the Iran conflict, the “vibes” in the bond market - as my colleague Brian Brill likes to say - are starting to change. What had been a fairly settled view heading into this period, with central banks expected to continue easing policy, is now being challenged as inflation risks creep back into the picture.

Central banks played a big role in that shift this week. The Bank of England caught markets’ attention by signaling it “stands ready to act” if inflation moves higher, which pushed investors to increase the odds of a rate hike as soon as next month. The European Central Bank told a similar story. Governing council member Joachim Nagel suggested hikes could come as early as April if price pressures continue to build, and markets have moved quickly to reflect that. At this point, nearly three ECB rate hikes are priced in before Halloween. Not long ago, both of these central banks were expected to stay in easing mode for the foreseeable future, so it’s been a meaningful turn in a short amount of time.

The Fed wasn’t quite as direct, but the underlying message wasn’t all that different. Policymakers revised their forecasts for both growth and inflation higher, while still pointing to a single rate cut sometime in 2026. Chair Powell noted that rate hikes were discussed, though not viewed as the base case. Even so, markets have had to adjust. Fed funds pricing has been volatile since the meeting, and there is now at least some probability being assigned to a rate hike before year-end. On the other side, expectations for cuts have been pushed much further out, with a full quarter-point cut not really showing up until late 2027 - and even that feels tentative given how thin liquidity is that far out the curve. For now, the market is effectively assuming the Fed stays on hold and waits for more clarity around tariff and war-related inflation before making its next move.

Out on the long end of the curve, things have been a bit more contained. There’s a bit of a tug of war going on as higher energy prices can push inflation expectations up in the near term, but if those prices rise enough to force central banks into tighter policy, it likely comes at the expense of growth. That growth concern tends to pull longer-term yields lower, which is helping offset some of the upward pressure. It’s a fairly delicate balance, though, and one that could shift if investors start to focus more on the longer-term fiscal costs tied to the conflict.

Volatility has picked up in a noticeable way. We’ve seen some of the largest intraday moves since Russia’s invasion of Ukraine in 2022, when energy markets were swinging and central banks were tightening at the same time. A lot of that is being driven by headlines, and that dynamic has been hard to shake as Treasury yields frequently moved by 10 or more basis points, in both directions, each day this week.

There are at least some early signs of potential de-escalation, although it’s far from certain. After Israel struck Iran’s South Pars gas field, Iran responded by targeting an LNG facility in Qatar, with initial estimates suggesting meaningful damage. More recently, Israel indicated it would avoid further attacks on energy infrastructure, and Iran signaled its response had been measured, leaving the door open for restraint on both sides.

For now, the bond market is trading very much on a headline-to-headline basis and we think that’s unlikely to change anytime soon. Until the fog around the conflict begins to lift or the economic data provides a clearer signal, this kind of environment is probably here to stay.

As of March 20, 2026