BIX ARTICLE
Choppy seas ahead
Apr 20, 2026
|
6 min read
Featured Posts
Social Bonds Illustrative Use-Of-Proceeds Case Studies Coronavirus
Jul 06, 2020
|
2 min read
Sustainable Banking Network (SBN) Creating Green Bond Markets
Jul 06, 2020
|
2 min read
Why is Inflation Making a Big Comeback After Being Absent for Decades in the U.S.?
Mar 24, 2022
|
7 min read
SC issues Corporate Governance Strategic Priorities 2021-2023
Mar 29, 2022
|
3 min read
The reaction so far feels less like a calm safe-haven rotation and more like a jittery repricing of risk.
As Charles Schwab analysts note, bond market volatility has picked up following the attacks on Iran, with more questions than answers about the ultimate impact on economic growth and inflation.
They also point out that the latest shock arrives just as investors were already digesting fresh anxiety around private credit markets and what that could mean for Treasury yields and corporate debt.
Before all this noise, the US economy was still seen as relatively solid, with the focus gradually shifting towards whether inflation was sticky enough to delay policy easing.
Now, Charles Schwab argues markets are likely to stay laser-focused on short-term risks, even if the underlying macro picture has not dramatically deteriorated yet.
On policy, the US Federal Reserve (Fed) is still expected to move slowly rather than react sharply.
Charles Schwab’s base view remains unchanged: “Coming into 2026, we expected the Fed to cut its benchmark interest rate one or two times by the end of the year, with the next rate cut likely not coming until the middle of the year.”
The fund manager adds that even though labour market signals have stabilised, inflation is still stubborn enough to justify patience.
In simple terms, the Fed is not rushing into easing just because headlines have turned noisy.
Charles Schwab also flags the balancing act the Fed faces: inflation pressure could rise if energy costs stay elevated, but growth could weaken if financial conditions tighten.
For now, it believes inflation worries are likely to dominate decision-making, especially with consumer price readings still sitting above target and market pricing pushing expectations of cuts further out.
Yields move higher
Normally in a crisis, government bonds rally as investors seek safety.
This time, Charles Schwab highlights a different reaction: yields have actually moved higher, suggesting inflation concerns are driving sentiment more than fear alone.
It notes that the 10-year US Treasury yield jumped sharply in early trading following the escalation, moving from below 4% to above it in a matter of days.
Rather than a flight to safety, investors appear more focused on what higher oil prices could do to inflation expectations.
Charles Schwab expects the 10-year yield to generally stay above 4%, though it acknowledges a wide range of outcomes.
Its view is that sustained inflation pressure and heavy debt issuance keep yields anchored at elevated levels, unless recession risks become more pronounced.
It also breaks down yield movements into three drivers: Fed expectations, inflation expectations, and the term premium.
Inflation expectations, in particular, have been drifting higher alongside energy prices, with breakeven rates climbing to multi-month highs.
Inflation protection comes back into focus
With that backdrop, inflation hedging is quietly regaining attention.
Charles Schwab suggests Treasury Inflation-Protected Securities could play a useful role in portfolios if price pressures persist.
These instruments are still subject to market volatility, but they offer a buffer if inflation proves more persistent than expected.
They also caution that even defensive bond strategies are not immune to rate-driven price swings, reminding investors that inflation protection works over time, not as a short-term stabiliser.
Private credit nerves
Away from government bonds, Charles Schwab highlights growing tension in private credit markets, particularly around liquidity and redemption pressure.
“Private credit investment strategies can mean many things, but they generally involve financing corporate, physical, or financial assets on a private basis,” it observes.
The concern, it says, is not just valuation markdowns but whether stress in less liquid markets could spill over into more accessible public debt markets.
So far, high-yield bonds have been relatively resilient, but leveraged loans are showing more sensitivity.
Charles Schwab is careful to separate the two: leveraged loans tend to be more exposed to lower-rated issuers and floating-rate structures, while high-yield bonds are generally more liquid and carry fixed coupons.
That difference matters in a shifting interest rate environment.
“Our concern is the potential spillover to the public markets, which are generally more accessible to a larger swath of investors,” it highlights.
Charles Schwab’s analysis leans slightly more constructive on high-yield bonds than leveraged loans.
One reason is credit quality, with a higher share of BB-rated debt in high-yield indices compared with a heavier concentration of lower-rated names in leveraged loan markets.
Another factor is sector exposure. Leveraged loans carry more weight in technology-linked borrowers, which have been sensitive to capital expenditure cycles and broader growth uncertainty.
High-yield bonds, by contrast, are more diversified and less exposed to that specific pressure point.
Finally, the potential for future Fed rate cuts matters.
Because leveraged loans are typically floating-rate instruments, they could see income pressure if rates eventually fall, while fixed-rate high-yield bonds lock in current yields.
Charles Schwab’s overall message is not to panic or radically reposition portfolios. Instead, it argues for moderation.
Intermediate-duration bonds remain its preferred area, balancing reinvestment risk on the short end with interest rate sensitivity on the long end.
It also continues to favour higher-quality credit, including Treasuries, agency mortgage-backed securities, and investment-grade corporate and municipal bonds, which now offer more attractive yields than in the post-financial crisis era.
For those willing to take limited risk, preferred securities and selective high-yield exposure are still on the table, but not in an aggressive way.
In general, investors should be prepared for a bumpy ride rather than expecting smooth returns.
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
YOU MAY ALSO LIKE
ARTICLE
Apr 20, 2026
|
6 min read
ARTICLE
Apr 16, 2026
|
3 min read
ARTICLE
Apr 16, 2026
|
5 min read
ARTICLE
Mar 16, 2026
|
3 min read