Summary

• A persistent oil shock implies higher inflation and weaker growth, but risk assets appear unfazed, with equities and credit spread performance diverging from the caution implied by government bonds.
• Rates markets appear more consistent with historical precedents during oil supply shocks than risk assets, suggesting investors are still assigning significant probability to a less friendly near-term trade-off between growth and inflation risks.
• Higher starting yields have strengthened the case for high quality fixed income, with key metrics showing bonds offer relative appeal versus both cash and equities.

The Iran conflict has entered its third month, and markets have settled into a “two steps forward, one step back” rhythm. Since mid-April, oil prices have been grinding higher again: Spot West Texas Intermediate (WTI) is back to hovering around $105 a barrel, and the

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