【Iran Crisis】Castle Securities Raises View on US Treasuries; Inflation Risk Already Reflected, but Market Underestimates Economic Slowdown

SocialAnxietyStaker · 2026-03-17T06:46:14+00:00

Castle Securities has shifted its view on U.S. Treasury bonds from bearish to neutral, believing the market is underestimating the impact of rising oil prices on the global economy. If Middle East tensions ease, oil prices may decline, increasing short-term Treasury demand and causing yields to fall. High oil prices could suppress economic growth and reduce the need for central banks to raise rates. To prepare for multiple scenarios, the firm recommends implementing a steepener strategy for the yield curve.

SocialAnxietyStaker

2026-03-17 06:46:14

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Citadel Securities reportedly shifted its view on U.S. Treasuries from bearish to neutral. Citadel Securities macro strategist Frank Flight said the market has largely priced in inflation risks from soaring oil prices but has underestimated the potential impact on global economic growth.

Investors are reassessing the risks of Middle East conflicts and the Strait of Hormuz, believing inflation risks may decline. U.S. Treasuries rose on Monday (16th), with the two-year yield falling 2 basis points to around 3.7%. Bloomberg cited a Monday report from Frank Flight to clients, indicating that whether the Iran conflict persists or is resolved relatively quickly, global short-term bonds could rise.

He noted that if oil transportation is disrupted long-term, investors will prepare for a slowdown in economic growth, which could pressure stocks and corporate bonds, but demand for short-term government bonds might increase. Alternatively, if tensions ease, traders may unwind their hawkish rate bets accumulated since the conflict began, providing room for yields to fall.

In the report, Flight wrote: “At current valuation levels, we believe there is limited room to short U.S. fixed income assets. The ‘tail risks’ of rising inflation and slowing growth are showing asymmetric fat tails.”

Flight stated that oil prices are unlikely to stay near $100 per barrel. If tensions ease, prices could fall to $70; if supply disruptions worsen, prices could jump to $150. Under high oil prices, tightening financial conditions could ultimately suppress economic growth and inflation expectations, reducing the need for central banks to raise interest rates.

He said that positioning in a steeper yield curve (where short-term bonds outperform long-term bonds) can provide “optimal protection” in various scenarios. He explained that if conflicts ease, short-term bonds will rise, and if inflation accelerates while risk assets remain supported, the yield curve could steepen (“bear steepening,” where long-term bonds fall more than short-term bonds).

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