Interest Rates

In its last meeting, the Federal Open Market Committee (FOMC) left its main policy rate unchanged, with Governor Stephen Miran casting the lone dissent in favor of a 25‑basis‑point cut. While the decision itself was anticipated, Federal Reserve Chair Jerome Powell struck a more hawkish tone during the press conference, prompting a noticeable rise in U.S. Treasury yields. The post‑meeting statement was largely unchanged, aside from the addition of language noting uncertainty around the implications of developments in the Middle East.

That uncertainty featured prominently in Powell’s remarks. While acknowledging it remains too early to assess the full economic impact of the conflict, he cautioned that a succession of shocks — tariffs, the pandemic and now energy — raises the risk of inflation expectations becoming unsettled. Powell emphasized that while policy remains flexible and cuts are still possible, progress toward the Fed’s 2% inflation target remains a prerequisite. Although the median projection continues to show one rate cut this year, policymakers expressed heightened concern about upside risks to inflation alongside growing downside risks to employment, underscoring the persistent tension within the Fed’s dual mandate that existed even prior to the war.

• The FOMC left its policy rate unchanged again.
  
  
• The developments in the Middle East add even more uncertainty to the outlook.
  
  
• Risks have increased on both sides of the dual-mandate, prompting the Fed to hold rates steady for now.

Credit Markets

In March, the combination of the Iran war, an interest‑rate sell‑off and elevated M&A‑related supply drove the worst monthly performance for high yield since 2023. Meanwhile, high‑yield coupons have risen 97 basis points (bps) from December 2021’s record low to roughly 6.7%, as issuers refinance into higher‑cost debt. While long‑run average total returns for high yield broadly track coupon income, year‑to‑year outcomes rarely do. In any given year, high yield almost never delivers a “coupon‑type” return. For example, the median annual differential between total returns and coupon is roughly 640 bps.

With that said, excess returns beyond coupon income are positive about half the time, underscoring the role income often plays in cushioning total returns. There have been five instances over the past 25 years where annual total returns were within 200 bps of the starting coupon: 2011, 2013, 2017, 2020 and 2021. By contrast, there have been just two years — 2008 and 2022 — when price declines fully offset the market’s coupon. 

— Ben McCubbin & Sau Mui, Co-Heads of High Yield, & Matthew Brink, Fixed Income Trader

• March was a tough month for high yield amid the Iran war, higher interest rates and supply headwinds.
  
  
• High yield coupons have risen about a percentage point above December 2021’s record low.
  
  
• Excess returns beyond coupon income are positive about half of the time for high yield, underscoring the role income often plays in cushioning total returns.
  
  

Equities

The Iran conflict has revealed an important distinction in how markets price risk. While geopolitical tension sharply escalated following the onset of the war, U.S. equities ultimately took a different path than energy markets. In the early weeks of April, equity volatility fell with U.S. stocks reclaiming record highs, while oil volatility remained high.

The divergence is not a dismissal of risk, but a shift in perception. For equities, the critical question has become whether the conflict would translate into systemic profit damage. As risk of substantial disruption to economic growth and earnings has eased, equities have edged higher. Oil markets, by contrast, have continued to trade on physical supply risks, shipping disruptions, and uncertainty around enforcement in key energy corridors. The takeaway is not complacency, it is selectivity. U.S. equities have demonstrated an ability to absorb geopolitical shocks when they remain localized and fail to substantially threaten underlying fundamentals. We maintain a constructive but disciplined view on equities overall, while maintaining prudent risk management as the conflict continues to evolve.

— Jordan Dekhayser, Senior Equity Client Portfolio Manager and Daniel Kim, Associate Equity Client Portfolio Manager

• U.S. equity volatility is lower than it was at the start of the Iran conflict. Oil price volatility is still elevated.
  
  
• Equities have benefitted from lower perceived risk of a major shock to economic activity and corporate profits.
  
  
• We maintain a constructive but disciplined view on equities overall.
  
  

Real Assets

We reduced our allocation to Natural Resources to equal weight and moved our underweight to Global Real Estate closer to neutral. The key rationale was that left‑tail risk from the war is perceived to be lower than before, which poses potential downside to Natural Resources following strong year-to-date performance, and should be more supportive of interest‑rate‑sensitive asset classes. We also reaffirmed our overweight to the S&P Global Listed Infrastructure (GLI) Index, which has delivered a healthy dividend yield of roughly 3–5% over the past couple of decades, supported by stable demand and cash‑generative business models.

Beyond its headline yield, GLI offers the potential for dividend growth over time, unlike fixed bond coupons. That growth is supported by a combination of organic earnings expansion — often benefiting from inflation linkage — and gradual increases in payout ratios. More broadly, infrastructure is characterized by pricing power, high barriers to entry, and predictable cash flows, which tend to produce steadier earnings growth and lower cyclical sensitivity than general equities. Many assets also benefit from explicit or implicit inflation pass‑through, providing a durable foundation for stable and growing dividends.

Source: Northern Trust Asset Management, Bloomberg. 60-day moving average forward dividend yield for S&P Global Infrastructure Index (GLI) from 12/31/2007 through 4/20/2026. Past performance is not indicative or a guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index.

• Listed infrastructure dividend yields have typically averaged 3-5%.
  
  
• These income returns tend to grow over time along with revenues and earnings growth. Earnings tend to be more predictable than general equities.
  
  
• We reaffirmed our tactical overweight to GLI, while reducing natural resources to add to global real estate.