Flash Fixed Income: Risks unbalanced as “war premium” fades

Sharp swings in government and corporate bond markets since the onset of the Middle East conflict pose interesting questions for fixed income investors.

European high yield (HY) credit, which had proved resilient to start 2026 despite growing concerns over AI risks, came under pressure in March as the Iran war disrupted global trade and weighed heavily on risk appetite.

Negative headlines around private credit have intensified this year, driven by the AI-related software sell-off and the news that most players have restricted withdrawals from retail private credit funds.

Markets have entered another week with geopolitical headlines as the major driver of price action, and with uncertainty running high, we think the likelihood of spreads revisiting their tights of this year has reduced.

With no end in sight to the US-Israeli war with Iran, and tensions escalating once again over the weekend, investors are bracing for more volatility. Inflation fears have ramped up significantly, reflected clearly in government bond markets where rising yields show rate cuts being priced out and rate hikes increasingly being priced in.

Data published by the Bank of England (BoE) on Friday shows an interesting trend in consumers’ approach to interest rates.

As fixed income investors, our focus is on how the shock ripples through the variables that matter most for bonds: inflation, growth, and how central banks respond.

Despite the oil price hanging on every word from the White House and volatility in everything from equities to government bonds, we saw a record day for US corporate bond supply on Tuesday led by a blockbuster deal from Amazon.

Collateralised Loan Obligation (CLO) markets have repriced meaningfully over the past few weeks, with a sell-off in software-related loans leading to even more spread “tiering” as investors differentiate between managers with lower exposure to stressed sectors and those carrying more tail risk.