Geopolitical developments once again dominated headlines and, more importantly, set the tone for financial markets over the past week. President Trump’s aggressive rhetoric toward Iran, including the remark that “a whole civilization will die tonight,” signaled a material escalation in the conflict and immediately unsettled risk sentiment. Markets whipsawed when a ceasefire was announced Tuesday evening, triggering a sharp relief rally across equities and rates as oil prices retreated aggressively. However, that reprieve proved short‑lived. By Sunday evening, following the failure of U.S.–Iran peace talks, President Trump announced a blockade of the Strait of Hormuz, reigniting geopolitical risk and reversing some of the optimism that had taken hold earlier in the week.
Despite the intensity of global headlines, economic fundamentals still demanded attention. March CPI data was released on Friday, and notably, inflationary pressures had already been firming even before the conflict began on February 28. Prior to the escalation, Fed officials repeatedly emphasized that inflation risks were skewed to the upside, with core measures stubbornly above the FOMC’s 2% target. Against that backdrop, the CPI report delivered a pronounced, energy-driven shock: headline inflation rose sharply month over month, accelerating from 0.3% to 0.9%, while the year-over-year rate climbed a full percentage point from 2.4% to 3.4%. Importantly, core inflation - excluding the volatile food and energy components - has thus far shown limited evidence of pass‑through from higher energy prices.
That insulation is unlikely to persist indefinitely. As elevated energy costs work their way through supply chains, pass‑through effects should become more visible in upcoming data. This week’s PPI release will be closely watched for signs that higher input costs are beginning to pressure goods and services prices more broadly. In addition, Thursday’s March Retail Sales report should shed light on how consumers responded to higher gasoline prices. Evidence of declining real disposable income with lighter discretionary spending would be an early signal that economic growth will start to weigh on GDP as the year progresses.
Last week's market performance was marked by extreme volatility. Brent crude collapsed below $100 per barrel from roughly $109 ahead of the ceasefire, only to rebound above $100 Sunday evening as geopolitical tensions resurfaced. Equities staged a powerful rally, with the S&P 500 gapping higher from 6,616 and finishing the week at 6,824 - leaving the index just 2.5% below its January all‑time high.
Treasury yields traced a roller-coaster path throughout the week but ultimately ended nearly unchanged, with the 10‑year Treasury closing at 4.32%. While the 4.25% level represents a near‑term technical support area, the current headline‑driven environment significantly weakens the relative strength of traditional technical signals. From a risk management perspective, we advocate for operating with a more neutral risk profile given the uncertain environment and “middle-of-the-range” yields without a clearly defined trend.
From the Municipal Desk (with contributions from Ryan Riffe):
By Friday’s close, benchmark yields had fallen by as much as 16 basis points, as the municipal market posted a second consecutive strong week. A light new issue calendar combined with steady inflows and hopeful geopolitical news coming out of the US-Iran conflict put investors back in the driver’s seat. Negotiated deals were met with strong demand, as many were oversubscribed and repriced to lower yield targets. Wednesday saw yields fall (prices rise) by 10 basis points in certain parts of the curve, providing evidence that investors have been patiently waiting for renewed confidence to re-enter the market. Although municipals have now had two weeks of reprieve, it would be very difficult to say we are out of the woods yet. Day-to-day movements will continue to be headline-driven as the market tries to find any sense of clarity moving forward. There is a sense of both pent-up demand and caution as the municipal market navigates its way through a traditionally challenging period of time. The primary calendar is expected to increase from $9B to $14B, although nearly 30% of the total supply will be taxable issuance.
Weekly Supply @ $14 Billion
2-YR Ratio @ 61%
3-YR Ratio @ 62%
5-YR Ratio @ 65%
10-YR Ratio @ 69%
30-YR Ratio @ 88%
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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