Central banks remain focused on inflation risks

Markets have been shaped by the Iran conflict, with March bringing higher oil prices, weaker stocks, and rising Treasury yields as investors priced in more inflation risk. April has offered some relief as risk assets rebounded, but yields remain elevated because energy costs and policy effects take time to filter through the economy. The main near-term threat is a renewed escalation in the war, while a gradual path toward negotiation could support both growth and markets.

For now, the message from falling volatility and firm bond yields is that investors expect the conflict to ease without derailing US expansion. The Federal Reserve remains cautious on inflation, and other major central banks are also leaning less dovish than before. With fiscal deficits still large and oil prices still influential, Treasury yields may stay range-bound in the near term.