Capital markets digest

Market insights

Peace talks stall: Last Tuesday, the U.S., Israel, and Iran agreed to a two-week conditional ceasefire, with Iran pledging to reopen the Strait of Hormuz (the global pathway for a fifth of the world’s oil supply), averting further U.S. escalation. However, the fragile truce was threatened last Wednesday by Israeli strikes on Lebanon, prompting Iran to close the Strait again before the U.S. requested Israel scale back attacks to preserve negotiations. Israel agreed to deescalate and is now scheduled to meet with Lebanon in Washington, D.C. this week. Last Friday, Vice President JD Vance led negotiations with Iran in Pakistan, but talks broke down over the weekend due to disagreements over sanctions relief, Iran’s nuclear program and the Strait’s reopening timeline, leaving both sides at an impasse as the ceasefire deadline approaches. With the breakdown in negotiations, the U.S. imposed a naval blockade to primarily prevent Iranian oil exports, which are helping to finance their military efforts, and escalate pressure following disagreements in negotiations. Iran responded by calling the blockade an “act of war” and warning it would retaliate, with officials threatening that any threat to Iranian ports would endanger all regional ports. While last week’s diplomatic progress initially boosted market sentiment, the disruption in U.S.-Iran negotiations over the weekend has reversed that optimism. Brent crude futures remain near $100/barrel, up from approximately $72/barrel in late February immediately before the U.S. operation began, as the Strait of Hormuz remains effectively closed.

 Core inflation remains anchored: Outside of the geopolitical developments, last week brought key inflation data and commentary from the March FOMC meeting. Last Wednesday, the Fed released meeting minutes from its March 17-18 meeting, revealing that a “vast majority” of officials said inflation progress could be slower than anticipated, while “many” policymakers cited the possible need for interest rate hikes to counter the risk of sustained inflation from high oil prices. Notably, the minutes showed that “some” officials saw a “strong case” for two-sided language on the rate path, a decrease from “several” in the prior minutes, suggesting a somewhat dovish shift as more policymakers acknowledge uncertainty about whether the next move would be a cut or a hike. On Thursday, the Federal Reserve’s preferred core PCE price inflation index for February rose 0.4% MoM (Prev. 0.3%), while the annual rate slowed to 3.0% (Prev. 3.1%), both in line with preliminary estimates. Last Friday’s March CPI data revealed a sharp acceleration in inflation to 3.3% YoY, the highest rate in nearly two years, driven by energy prices posting their largest gain since 2005. Additionally, gasoline prices posted their largest one-month increase since the series was first published in 1967, rising further due to the Iran conflict. However, core CPI rose just 0.2% MoM, undershooting the 0.3% consensus forecast and providing some relief to markets. Fed Chair Jerome Powell has indicated the central bank currently views the energy shock as temporary and can look past supply-driven price spikes. The softer core reading may reinforce this view, though policymakers remain cautious about inflation staying elevated above their 2% target.

Treasury yields cautiously end lower: To no surprise, Treasury yields remained highly sensitive to developments in Iran, particularly concerning any potential escalations, Strait of Hormuz events, or retaliation involving U.S. forces. The back-and-forth updates around the ceasefire drove Treasury yields to move in a choppy pattern. The 10-year Treasury yield traded in a range of 4.23% – 4.38%, offering little consistency on a day-to-day basis. However, it ultimately ended the week four bps lower at 4.32% as markets digested the relatively tame inflation data while looking towards updates on the weekend’s U.S./Iran negotiations in Pakistan. The fluid CME FedWatch Tool still shows less than a 25% chance of a rate cut this year with the earliest timeline of a rate cut being in fall of 2027. Last week’s Treasury auctions showed mixed results amid heightened volatility from geopolitical developments. Tuesday’s $58 billion 3-year note auction performed well, however both Wednesday’s $39 billion 10-year note auction and Thursday’s $22 billion 30-year bond auction saw demand fall slightly short of expectations.

Credit spreads edged tighter on ceasefire optimism: Rate lock activity in new issue Fannie Mae DUS/MBS remained curtailed, potentially due to a seasonal “spring break” vacation factor. Weekly rate lock volumes in new issue Fannie Mae DUS/MBS fell to approximately $360 million last week, well under its $990 million 4-week moving average pace. However, the limited supply was rewarded with somewhat tighter investor spreads, as agency CMBS traders commented that the low supply was supportive for new issue rate lock execution. Generic investor spread indications tightened by approximately 3-4 bps across standard structures over the week, potentially aided by a “risk on” environment in financial markets due to the perceived reduction in Middle East conflict risks heading into weekend negotiations. As the geopolitical climate remains fragile, credit spread responses to any positive/negative developments are anticipated to spill over into Agency CMBS pricing. That said, Agency CMBS traders remain optimistic about the sector. Freddie Mac’s two K-deals last week were both priced within market expectations. Of note, one of the deals was a Freddie Mac “Small Balance” loan (SB-127), which priced several basis points behind a larger standard-structured $978 million 7-year Freddie (K-765) transaction. Corporate credit spreads have tightened by roughly 2-5 bps last week in the Bloomberg Single-A Industrials 10-year Index and Markit CDX IG 5-year Index.

Economic Calendar: (Week of 04.13.2026 – 04.17.2026):

Developments in the Middle East will continue to take precedence in driving market sentiment and volatility. Following the lack of progress in U.S.-Iran negotiations over the weekend, the fragile two-week ceasefire now appears increasingly at risk, with the status of the Strait of Hormuz remaining the primary catalyst for oil prices and global inflation expectations. Any further escalation could quickly overshadow domestic economic data, while a diplomatic breakthrough could provide significant relief to energy markets.

Against this backdrop, the key economic releases to watch out for are the March Producer Price Index and the release of the Fed’s Beige Book as markets continue to assess inflationary pressures from the continued closure of the Strait of Hormuz. The March Producer Price Index is expected to show an increase in its headline rate to 1.1% MoM on Tuesday, up from 0.7% in February as energy costs surge through the supply chain. Core PPI excluding food and energy is forecasted to rise 0.4% MoM, slightly below February’s 0.5% monthly pace. The Fed’s Beige Book, which will be released this Wednesday, may provide a sharper shift in tone from recent economic surveys. The March ISM Manufacturing and Services surveys released over the past few weeks revealed that the prices paid subcomponent, the measure of what businesses are paying for raw materials, energy and other business input costs, elevated to the highest level since 2022. These rising input costs could pressure some companies to pass on their expenses onto consumers, elevating inflation. The Beige Book will provide crucial anecdotal evidence on how businesses across all twelve Fed districts are responding to these input cost pressures. Additionally, major bank earnings this week will offer critical insights into lending conditions and credit quality amid heightened geopolitical uncertainty and elevated energy costs. A host of Fed speakers throughout the week will likely provide commentary on the inflation outlook and the central bank’s policy stance in light of the geopolitical developments.

Economic Calendar: (Week of 04.13.2026 – 04.17.2026):

04/14: Tuesday

• Mar: NFIB Small Business Optimism (Prev. 98.80)
• Mar: PPI Final Demand MoM (Est. 1.1%, Prev. 0.7%)
• Mar: PPI Ex Food and Energy MoM (Est. 0.4%, Prev. 0.5%)
• Mar: PPI Final Demand YoY (Est. 4.6%, Prev. 3.4%)
• Mar: PPI Ex Food and Energy YoY (Est. 4.1%, Prev. 3.9%)

04/15: Wednesday

• Fed Releases Beige Book

04/16: Thursday

• Week of Apr 11^th: Initial Jobless Claims (Est. 213K, Prev. 219K)
• Week of Apr 4^th: Continuing Claims (Est. 1810K, Prev. 1794K)
• Mar: Industrial Production MoM (Est. 0.1%, Prev. 0.2%)