Contained Escalation

Geopolitics moved to the forefront in late February and early March as U.S. and Israeli strikes on Iran, followed by Iranian retaliation and tanker attacks in the Strait of Hormuz, pushed oil prices higher and briefly reshaped risk sentiment. Markets are now weighing whether this shock proves short-lived or evolves into a more persistent disruption to energy supply, which would have deeper implications for inflation, central bank policy paths, and the hedging role of government bonds. Against this backdrop, broader fixed income conditions remain orderly: February saw modest spread widening across investment grade and high yield credit alongside lower Treasury yields, with technicals softening but still supportive.

Emerging market debt continues to offer attractive carry where reforms are credible and real yields remain elevated, though higher energy prices are amplifying cross-country dispersion. Within developed markets we maintain a neutral stance on duration with selective curve steepeners in Europe, favor income opportunities in securitized products such as agency MBS and non-agency RMBS, and keep a measured bias toward high yield over investment grade given valuations. Across portfolios we emphasize disciplined risk sizing, liquidity awareness, and security selection as the key levers to navigate episodic volatility while remaining positioned for carry-driven returns.