Global Credit Bullets | Monday, 9th March 2026

Iran – Tail risks rising, rates selloff

The first week of the Middle East conflict has now passed, but the situation remains highly uncertain. After a muted reaction on Monday, markets sold off aggressively throughout last week. The move was more pronounced in rates and in heavily positioned risk assets. What remains critical to monitor is Iran’s operational capability, particularly its missile capacity, as recent developments suggest that part of the regime’s military infrastructure may have been degraded. For oil markets, three key variables will be crucial in the near term.

First, the status of the Strait of Hormuz remains central. Satellite imagery suggests that crude shipping activity has already dropped sharply, with very limited traffic currently transiting the strait.

Second, attention will turn to whether Gulf producers are forced to stop oil and gas production. Storage capacity is already high, and any disruption to export flows would quickly force producers to reduce output.

Third, any direct strike on refineries or production facilities would represent a major escalation, with potentially significant upward pressure on oil prices.

Beyond the immediate oil impact, such developments would also pose a significant challenge to the economic outlook for GCC countries. While higher oil prices would support fiscal revenues in the short term, broader economic conditions could deteriorate. Tourism, a key pillar of economic diversification across the region, is already facing downside risks as perceptions of regional security weaken. In the medium term, governments may face a more complex fiscal trade-off: higher defence spending and weaker tourism revenues could offset part of the gains from higher oil prices. More broadly, the perceived stability and safety premium of the Gulf region is now being tested, and restoring that confidence could require time and significant policy effort.

We believe some complacency remains in the market, particularly in credit spreads, as the adjustment has been concentrated mainly in duration and in European front-end rates. Bonds are gradually building an inflation risk premium, with euro area inflation currently expected to peak around May. In this environment, risk assets appear less attractive. The market reaction has so far been relatively contained, leaving room for further downside should higher oil prices persist or if the conflict broadens to involve additional Middle Eastern actors, including GCC countries.

United States – Weak data, tricky rate path

Last Friday’s US Nonfarm Payrolls surprised to the downside, with employment falling by 92k in February, well below expectations. The unemployment rate increased to 4.4%, also above consensus, while the previous two months were revised lower, reinforcing signs of softening in the US labour market. Retail sales data also came in weak. Prior to the release, markets were pricing barely one Fed cut before September. Following the data, the front end repriced lower and markets now price roughly two cuts before the Fed ends its easing cycle. Meanwhile, longer-dated yields moved higher, with both the 10-year and 30-year Treasury yields rising by around 3 basis points on the day. However, geopolitical tensions pose upside risks to rates. Any sustained increase in oil prices could add inflationary pressure and complicate the Fed’s easing path, potentially putting renewed upward pressure on US yields.

Algebris Investments’ Global Credit Team