The old market adage “Don’t Fight the Fed” has been overshadowed by the far more consequential force unfolding in the Middle East. Investors are assigning significantly greater weight to the economic fallout of the conflict than the Federal Reserve appears willing to acknowledge. Oil’s rapid ascent. and the inflationary ripple effects it threatens have dominated financial markets, global sentiment, and policy discussions. Although the United States benefits from its position as a net petroleum exporter and the world’s largest oil producer, these advantages only partially cushion the economy from what has become a global energy shock.
The on-again-off-again news cycle on the war with Iran has markets spinning. President Trump’s statement early Monday morning that US strikes against Iran were postponed pending the outcome of talks with Iran provided a bid to Treasuries. Iranian officials' disavowing any such discussions has added further confusion about the true status of the conflict. Regardless, this is exactly the type of volatility we can expect going forward.
At its latest meeting, the FOMC unsurprisingly left the policy rate unchanged. Chair Powell largely downplayed the inflationary implications of higher oil prices, signaling that the Fed sees limited justification for altering its policy stance amid geopolitical uncertainty. Markets, however, disagree. Traders swiftly priced in a more persistent inflation threat, driving Treasury yields higher throughout the week as risk premia widened.
Powell also addressed the cooling labor market, noting the debate around the breakeven pace of monthly job growth. He pointed to immigration reform as a meaningful factor influencing payroll dynamics, while reiterating that the unemployment rate remains the Fed’s more reliable guidepost for labor‑market health. With unemployment still sitting comfortably within the Fed’s definition of “full employment,” policymakers view labor conditions as broadly stable despite softer headline job gains.
Equity markets continue to absorb the brunt of geopolitical and macroeconomic strain. Since the conflict began three weeks ago, the S&P 500 has declined more than 5%, retreating from levels above 6900 to roughly 6500. The surge in Brent crude above $110 per barrel has triggered a sharp repricing of cyclical and discretionary sectors, where margin pressure is expected to intensify.
Rate markets have undergone a pronounced sell‑off, pushing yields higher across the curve with a notable bear‑flattening bias as front‑end yields outpaced the long end. After breaking above the 4% threshold in early March, the 10‑year Treasury quickly gravitated toward technical targets of 4.20% and, potentially, 4.33%. On Friday, yields reached 4.39%, reflecting the market’s more urgent pricing of inflation risks tied to persistently elevated oil prices.
Technical signals in the Treasury futures market have continued to offer useful guideposts over recent weeks. After the 10‑Year futures contract decisively broke below the previously identified support level at 111‑08, attention shifted to the next meaningful intermediate markers. The first of these - 110‑17 - aligned closely with Friday’s closing level near 110‑16, underscoring its relevance as a short‑term pivot. Should downside momentum persist, the next lower technical target comes into focus at 110‑06, marking the next logical area of potential support.
In short, the geopolitical shock has overwhelmed traditional monetary‑policy signaling. Until there is clearer visibility on the trajectory of the conflict and its economic consequences, markets are likely to remain volatile, inflation‑sensitive, and inclined to challenge the Fed’s more sanguine inflation narrative.
From the Municipal Desk (with contributions from Ryan Riffe):
Municipals continued to battle their way through another week of pronounced volatility. Expectations of inflation, interest rates, and the global economic impact from the Iran War continue to add murkiness to an already unclear picture. This has put the market on edge, creating enormous intra-day swings. Yields on the 10-YR Treasury have now risen 45 basis points in just 3 weeks. Municipals began the week with a somewhat positive tone as demand seemed to once again outweigh the supply at hand. Negotiated deals were heavily oversubscribed on Tuesday and Wednesday, which provided the market with a sense of stability. Benchmark yields on the Municipal MMD scale fell during Monday and Tuesday's trading sessions, reflecting a strong sense of investor demand. This, however, did not last as Treasury rates soared early Friday morning, reaching levels we have not seen since July of 2025. Although there is plenty of cash available to invest, we believe investors will be patient, given the sharp move on Friday. Adding to the challenge will be an increased new issue calendar of $14.5 billion (Up from $10 billion). With the uptick in supply, secondary markets may receive less attention than in recent weeks. Overall, we anticipate choppy municipal trading in the near term as volatility is likely to persist.
Weekly Supply @ $14.5 Billion
2-YR Ratio @ 59%
3-YR Ratio @ 60%
5-YR Ratio @ 62%
10-YR Ratio @ 68e
30-YR Ratio @ 90%
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
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