Rencontrer Felipe

With tensions in the Strait of Hormuz increasing over the weekend and markets getting used to oil prices well in excess of $100 per barrel, this seems an opportune moment to zoom out and look at the state of play in fixed income markets, considering the unsettling reality of a longer-than-expected conflict in the Middle East.

We have had an eventful few weeks of AI-driven volatility in markets, with markets seemingly swinging from “everyone’s a winner” to “everyone’s a loser” faster than technological progress itself.

Foreign exchange markets have taken centre stage again in recent weeks. President Trump’s apparent indifference to the relatively steep dollar depreciation trend of late has raised a few eyebrows and added fuel to the dollar fire.

With spreads well below long term averages and government bond curves pricing in what central banks are likely to do in the next few quarters, opportunities for capital gains through spread compression or sustained rallies in government bonds appear to be limited.

The new year has begun with a jolt for market participants after the US carried out a military operation in Caracas over the weekend, capturing Venezuela’s president Nicolas Maduro and his wife.

Amid tariffs, bankruptcies, and uncertainty, credit fundamentals remain strong. Elevated yields and solid corporate balance sheets favour income-focused fixed income strategies over government bonds, even as volatility persists.