What has happened?
The geopolitical landscape has shifted abruptly following a significant escalation in tensions between the US-Israel and Iran.
Over the past few days, military exchanges between US-Israel and Iran have reached a critical inflection point. Following targeted strikes on Iran’s leaders and the nation strategic assets, Iran opts to disrupt the maritime trade in the Strait of Hormuz, a vital artery for global oil supply, announcing the passage is effectively ‘closed’. Consequently, brent crude, which closed Friday at USD 72.87/bbl, has surged past USD 78/bbl at the Monday open and sustain at 77/bbl as of today.
Apart from that, key global transit hubs, Dubai, Abu Dhabi, Bahrain and Doha have seen operations suspended due to missile activity and airspace closures across the Gulf. This effectively severs the primary air link between Europe and Asia.
In his latest speech, President Donald Trump has said that the US-Israel operation has been projected to last four to five weeks but could “go far longer than that”. This imply that we may be facing a prolonged blockade of the Strait of Hormuz, that would trap approximately 20% of global oil supply and keep Brent crude price sustained above high level.
Repercussion
For fixed income, this event complicates the global easing narrative that dominated the start of the year. This is because Iran’s blockage of Strait of Hormuz will likely result in higher energy (oil) costs, threatening to stall the "last mile" of disinflation.
According to a Fed research, a 10% increase in oil prices can raise the headline CPI by almost 0.4% in total, including the energy CPI on impact and the second-round effects on food and core products.
This puts central banks in a more difficult position.
Looking at the global fixed income landscape, the traditional ‘flight to safety’ response typically triggered by such geopolitical tension is surprisingly muted. In fact, the marginal ‘flight to safety’ effect was quickly overwhelmed by the stronger than expected US Manufacturing PMI released on 2 March 2026, shifting market focus from geopolitical risk to the threat of reignited inflation and resilient US macro backdrop.
This is also accompanied by oil inflation fear. As energy prices may climb, investors are bracing for a potential 'higher-for-longer' interest rate landscape.
Table 1: Yield movement in different bond market
|
US Treasuries |
|||
|
Date |
3-Mar-26 |
5 days ago |
1 week ago |
|
3M |
3.67 |
3.67 |
3.67 |
|
1Y |
3.53 |
3.51 |
3.52 |
|
5Y |
3.61 |
3.57 |
3.60 |
|
10Y |
4.04 |
4.01 |
4.03 |
|
20Y |
4.63 |
4.60 |
4.63 |
|
Australian Government Bonds |
|||
|
Date |
3-Mar-26 |
5 days ago |
1 week ago |
|
3M |
3.98 |
4.00 |
3.99 |
|
1Y |
4.23 |
4.17 |
4.15 |
|
5Y |
4.40 |
4.36 |
4.35 |
|
10Y |
4.73 |
4.70 |
4.69 |
|
20Y |
5.15 |
5.12 |
5.14 |
|
Singapore Government Securities |
|||
|
Date |
3-Mar-26 |
5 days ago |
1 week ago |
|
3M |
1.23 |
1.24 |
1.35 |
|
1Y |
1.30 |
1.31 |
1.32 |
|
5Y |
1.52 |
1.55 |
1.54 |
|
10Y |
1.94 |
1.98 |
1.93 |
|
20Y |
2.08 |
2.14 |
2.07 |
|
Malaysia Government Securities |
|||
|
Date |
3-Mar-26 |
5 days ago |
1 week ago |
|
5Y |
3.31 |
3.29 |
3.26 |
|
10Y |
3.49 |
3.50 |
3.51 |
|
20Y |
3.93 |
3.95 |
3.96 |
|
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 3 March 2026. |
|||
The Action: Reanchoring to fundamentals
We view this as more of a transient phenomenon rather than a structural shift in the 2026 interest rate regime.
Once the immediate intensity of the US-Israel-Iran escalation subsides, the narrative for fixed income will revert back to its fundamental anchors: inflation (may be affected by higher energy costs), labour market and central bank policy trajectories.
For now, we do not expect a sustained oil rally, as supply buffers can cushion shocks, oil medium-term fundamentals still look soft and incentives discourage an “energy shock” endgame. These points are articulated in detail in this article: Oil jumps after US-Israel strikes on Iran – what investors should do now
How long oil remains at these elevated levels depends entirely on the resolution of current tensions. One thing to be sure is the escalated conflict has increase near-term upside risks to oil and keeping the volatility elevated.
Nonetheless, we maintain our preference for investment grade bond, where strong issuer fundamentals provide a buffer against volatility and current backdrop. We remain neutral on high yield (HY) bonds, recommending investors to remain selective in seeking value.
For detailed bond recommendations, investors may refer to the articles linked below.
2026 USD Bond Market Outlook: Slowing US Growth and Gradual Yield Curve Normalisation
Investment Grade Bonds: Lock in yields today with these lower-risk instruments
2026 High Yield Bond Market Outlook: Strategies for Capturing Higher Yields as Rates Move Lower
As for emerging market debt, we retain our modestly positive view on the market, with moderate inflation relative to its developed market counterparts, more contained government debt level and decent pickup over 10Y US treasuries still in play.
We have also curated our strategic outlook for the respective bond region markets as below:
|
Market |
Narratives |
|
US Fixed Income |
- Expect Fed to tread careful in 2026, given the risk of potential reignition in energy prices. Expect a data dependent, meeting by meeting approach. - Investors may gradually shift towards medium-term duration (5 -10 year) for potential price appreciation and roll-down returns. - Nonetheless, there’s no immediate urgency to exit the short term yield/front-end, as it still offers a pickup relative to 1-5 year tenure. |
|
Singapore Fixed Income |
- Economic momentum is expected to remain robust, while inflationary pressures should stay broadly contained (barring major geopolitical shocks). - Demand-supply backdrop for bonds remains constructive. New bond issuances are likely to be well-absorbed as investors continue to search for higher yields. - For sovereign bonds, we see greater value in medium tenors (5 – 10 years), where the curve is steepest. This provides more meaningful yield pickup for investors willing to take on additional duration risks. - For corporate bonds, although yields have compressed, selective opportunities remain. We see pockets of value in high-quality corporate bonds that offer attractive income. Examples include Tier 2 bank bonds and selected senior unsecured issues. |
|
Malaysia Fixed Income |
- Foresee no rate cut in 2026 following stronger than expected 4Q25 GDP. - Continue to prefer medium term duration (possibly 5 to 7 years). - Yields across different tenure expected to remain range-bound throughout the year. |
|
Australia Fixed Income |
- Latest trimmed mean inflation (January) was 3.4%, still higher than RBA 2%-3% inflation target. Potential reignition in energy prices might make high inflation stickier.
- Following the February hike, we anticipate a pause in March, as RBA governor said ‘we’ll observe now what happens to financial conditions’. - With AUD bond market already pricing for 2 rate hikes (1 delivered in February), we still favour longer duration play, possibly the 7 to 9 years. |
Recommended bond ideas
|
USD |
|||||
|
Issue |
Issuer |
Ask Price |
Yield to Worst (%) |
Years to Maturity / Next Call |
Bond Credit Rating (S&P / Fitch) |
|
Petrobras Global Finance B.V. |
101.70 |
5.18% |
4.84 / 4.59 |
BB / BB |
|
|
Petrobras Global Finance B.V. |
105.90 |
5.48% |
7.34 / 7.09 |
BB / BB |
|
|
Petrobras Global Finance B.V. |
101.74 |
5.74% |
8.87 / 8.62 |
BB / BB |
|
|
Tapestry Inc |
102.89 |
5.09% |
8.84 |
BBB / - |
|
|
Vale Canada Ltd |
112.12 |
5.00% |
6.54 / - |
BBB- / BBB+ |
|
|
Vale Overseas Ltd |
108.13 |
4.75% |
7.28 / 7.03 |
BBB- / BBB+ |
|
|
Vale Overseas Ltd |
121.59 |
4.91% |
7.88 / - |
BBB / BBB+ |
|
|
XP Inc |
103.49 |
5.56% |
3.33 / 3.25 |
- / BB |
|
|
SGD |
|||||
|
Issue |
Issuer |
Ask Price |
Yield to Worst (%) |
Years to Maturity / Next call |
Bond Credit Rating (S&P / Fitch) |
|
Wee Hur Holdings Ltd |
101.25 |
4.50% |
4.68 / - |
- / - |
|
|
BPCE SA |
106.13 |
2.87% |
8.02 / 3.02 |
BBB / BBB+ |
|
|
BPCE SA |
105.73 |
3.03% |
8.89 / 3.89 |
BBB / BBB+ |
|
|
BNP Paribas SA |
106.00 |
2.63% |
7.96 / 2.96 |
BBB+ / A- |
|
|
BNP Paribas SA |
104.23 |
2.85% |
9.12 / 4.12 |
- / A- |
|
|
AIMS APAC REIT |
100.10 |
4.17% |
- / 5.52 |
- / - |
|
|
Standard Chartered PLC |
101.05 |
3.88% |
- / 5.37 |
BB+ / BBB- |
|
|
AUD |
|||||
|
Issue |
Issuer |
Ask Price |
Yield to Worst (%) |
Years to Maturity / Next call |
Bond Credit Rating (S&P / Fitch) |
|
BPCE SA |
101.66 |
6.32% |
14.28/9.28 |
-/BBB |
|
|
Australia and New Zealand Banking Group Limited |
100.91 |
5.93% |
13.40/8.39 |
-/A- |
|
|
Woolworths Group Limited |
102.20 |
5.58% |
8.74/8.49 |
-/- |
|
|
Ausgrid Finance Pty Ltd |
101.21 |
5.77% |
9.77/9.53 |
-/- |
|
|
MYR |
|||||
|
Issue |
Issuer |
Ask Price |
Yield to Worst (%) |
Years to Maturity / Next call |
Bond Credit Rating |
|
SIBS Sdn Bhd |
100.50 |
5.45% |
3.99/- |
AA- (MARC) |
|
|
GKEN Mar2029 Corp (MYR)* |
George Kent (Malaysia) Berhad |
100.0* |
5%* |
3.00*/- |
A+ (MARC) |
|
GKEN Mar2031 Corp (MYR)* |
George Kent (Malaysia) Berhad |
100.0* |
5.25%* |
5.00*/- |
A+ (MARC) |
|
Exsim Capital Resources Berhad |
100.64 |
4.59% |
3.37/- |
AA3 (RAM) |
|
|
Source: Bondsupermart, iFAST Compilations. Data as of 3 March 2026. *to be issued. |
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For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in AAREIT 4.100% Perpetual Corp (SGD), AAREIT 5.375% Perpetual Corp (SGD), ANZ 4.500% 02Dec2032 Corp (SGD), BNP 4.750% 15Feb2034 Corp (SGD), STANLN 4.300% Perpetual Corp (SGD), STANLN 4.300% 19Feb2027 Corp (USD), STANLN 5.400% 12Aug2036 Corp (USD), BPCEGP 6.5618% 12Jun2040 Corp (AUD), ANZ 6.124% 25Jul2039 Corp (AUD), SIBSAB 5.600% 01Mar2030 Corp (MYR), EXCAPR 4.800% 17Jul2029 Corp (MYR) and EXCAPR 5.600% 28May2027 Corp (MYR), and the analyst who produced this report holds a NIL position in securities mentioned in this article.
