Shock, Then Repricing

Zum Video 

March was defined by a sharp escalation in geopolitical risk and a corresponding repricing across rates, energy, and credit markets. The ongoing conflict involving Iran remained the dominant macro driver, shifting investor focus away from prior themes such as AI-driven disruption toward inflation risk, growth implications, and potential supply shocks in global energy markets. 

The most immediate transmission channel was energy. Oil prices rose materially during the month, reaching levels around $110 per barrel, with intramonth spikes higher, as markets priced the risk of disruption to key shipping routes such as the Strait of Hormuz and potential damage to Gulf energy infrastructure. This repricing embedded a meaningful geopolitical risk premium into energy markets and raised concerns about second-order effects on inflation and growth. 

Rates markets experienced a significant and broad-based repricing. Global 10-year yields rose sharply, with the U.S. 10-year increasing 38 basis points (bps) to 4.32%, the UK up 68bps to 4.92%, and Germany up 36bps to 3.00%. This move was accompanied by a bear flattening of curves, with U.S. 2s10s flattening by 4bps and 5s30s flattening by 14bps, reflecting a shift in expectations toward tighter policy and higher term premia. Inflation expectations also moved higher, with U.S. 10-year breakevens rising 5bps to 2.31%, reinforcing the inflationary implications of elevated energy prices. 

This repricing reflected a sharp shift in central bank expectations. The market removed pricing for multiple Fed cuts, while European policy expectations turned more  hawkish, with the European Central Bank now pricing a more restrictive stance and the Bank of England facing renewed pressure given its inflation backdrop and energy exposure. As a result, positioning built around steep curves and carry-driven strategies was disrupted, leading to adjustments across portfolios. 

Credit markets remained relatively resilient in aggregate, though spreads moved wider and dispersion increased. U.S. investment grade (IG) spreads widened modestly by 5bps to 89bps OAS, supported by strong technicals including fund inflows and low dealer inventories. In contrast, Euro investment grade underperformed more materially, widening 14bps to 97bps OAS, reflecting greater macro sensitivity and weaker supply dynamics. Within IG, widening was more pronounced in lower-quality segments, with BBB spreads widening 6bps in the U.S. and 17bps in Europe. 

At the same time, dispersion within IG remained elevated. M&A activity in sectors such as food & beverage and healthcare/pharmaceuticals contributed to idiosyncratic spread moves, while AI-related concerns continued to weigh on parts of the market. Some individual issuers tightened by 10–20bps during March, though these names generally remain 20–40bps wider year-to-date, underscoring that improvements have been selective rather than broad-based. 

High yield markets experienced greater volatility. U.S. high yield spreads widened 26bps to 317bps, while Euro high yield widened 53bps to 332bps, with dispersion across sectors driven by both macro and idiosyncratic factors. Energy outperformed amid higher oil prices, while more cyclical sectors such as airlines lagged. Lower-quality segments underperformed meaningfully, with CCC spreads widening over 100bps in both regions. 

In leveraged loans, performance stabilized following earlier weakness, particularly within software, which had been under pressure due to AI-related concerns. CLO issuance remained robust, with Q1 volumes tracking toward annualized levels consistent with the prior year, even as retail outflows persisted and managers reduced exposure to more vulnerable sectors. 

Securitized markets experienced volatility primarily driven by rates. Agency MBS yields rose sharply (up ~56bps), while spreads widened modestly before partially retracing.  Credit-sensitive securitized sectors saw more contained moves, with AAA spreads widening only 4–6bps, broadly returning to levels seen at the start of the year. Despite rate-driven volatility, funding conditions remained orderly. 

Emerging markets reflected the broader macro repricing. EM external spreads widened ~25bps, with larger moves in high yield (+42bps) and regional dispersion across Africa (+55bps) and Europe (+44bps). Local rates also sold off meaningfully, with front-end yields in some markets rising 75–150bps, while currencies broadly weakened against the U.S. dollar, which appreciated ~2.4% over the month. 

Municipal markets also adjusted to the higher rate environment, with intermediate ratios moving closer to historical averages, while the long end remained relatively well supported.

Zum vollständigen Global Fixed Income Bulletin