Iran – Between exit and escalation
The war in Iran has now entered its second month, with uncertainty continuing to build. Communication from the Trump administration has been inconsistent and at times unclear. In last Wednesday’s address, the President outlined developments but provided little guidance on the endgame. He reiterated that failure to reach a deal would lead to severe consequences for Iran. Markets had entered the speech with optimism but reversed sharply as de-escalation failed to materialise. Oil prices surged by around 10% on Thursday, reflecting renewed geopolitical risk. At this stage, a negotiated agreement between the US and Iran appears increasingly unlikely as the current stalemate persists. Looking ahead, two broad paths emerge: the President could declare victory and disengage, or pursue further escalation, potentially culminating in direct military involvement on the ground.
Inflation – Sharp pick up
March data shows early signs of inflationary pressure building across both Europe and the US. German CPI rose from 1.9% to 2.7%, while euro area HICP reached 2.5%, broadly in line with market expectations. So far, growth remains resilient. Soft indicators have not yet shown a meaningful deterioration in activity. However, this may change in the coming months. Rising energy costs, particularly in refined products such as kerosene, are likely to feed through more forcefully. In addition, the complete halt in marine traffic raises the risk of renewed supply chain disruptions, which could further amplify inflation pressures and weigh on growth in due course.
Private Credit – Gates are closing
Last week, Blue Owl, one of the key players in private credit, announced it would cap redemptions at 5% amid a surge in withdrawal requests across some of its funds. This move follows similar actions by other private credit firms, highlighting growing concerns around potential losses in the space. The increase in gating measures suggests rising liquidity stress beneath the surface. In public markets, high yield spreads have widened, though this appears primarily driven by geopolitical tensions and higher oil prices rather than a reassessment of default risk. For now, public credit markets are not pricing an imminent default cycle. A turn in the private credit cycle could eventually spill over into public markets via tighter liquidity conditions, forced asset sales, and a repricing of default risk.
Algebris Investments’ Global Credit Team
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