Geopolitics takes the reins
16 APR, 2026
By Felipe Villarroel
By Felipe Villarroel, Partner and Portfolio Manager at TwentyFour AM (a Vontobel boutique)
Markets have started another week in which geopolitical headlines are the main driver of price movements, and given the high level of uncertainty, we believe the likelihood of spreads returning to the lows recorded this year has decreased.
Starting with the most obvious headline: there is no agreement. Although markets—and probably most politicians—were not expecting a major breakthrough after the weekend talks between Iran and the U.S., it is fair to say that, overall, the news has been slightly worse than expected. The prospect of the U.S. imposing a blockade on vessels leaving the Strait of Hormuz not only pushed oil prices higher again on Monday morning, but also brings the added complication that harming the Iranian economy at this stage further exacerbates the issue of rising oil prices. For now, there are no details on how this would work in practice, but forecasts are already circulating in the press pointing to oil prices of $150 per barrel if it were implemented.
Beyond oil prices, the market reaction appears moderate at the time of writing. European high-yield and investment-grade bond spreads have widened by 8 basis points and 2 basis points respectively; AT1 instruments have fallen by around 0.5 points, and equities have declined by 0.5% and 1.3% in the U.S. and Europe, respectively. Government bonds barely moved initially but have seen a slight decline over the course of Monday afternoon. This relatively muted price action is likely due to the fact that talks took place at all, indicating some sense of urgency among the countries involved to bring the conflict to an end. Needless to say, headlines could turn very negative very quickly, and markets would follow suit. However, the threshold for a sharp sell-off has risen slightly.
In the coming days, market reaction may depend on whether the ceasefire holds. Notably, Iran has broadly respected the ceasefire despite Israel continuing its attacks on Lebanon—something that had been in doubt. Beyond the next few days, markets will focus on tangible evidence of economic damage resulting from higher oil prices. So far, we have seen higher inflation figures, but there is still limited evidence that growth has been affected. Many unanswered questions remain.
This was not the only major geopolitical development over the weekend. Hungary’s general election delivered a notable result, with Peter Magyar’s Tisza party securing a landslide victory and appearing almost certain to achieve the two-thirds parliamentary majority required to enact constitutional reforms. Hungary is now more likely to receive European Union funds that are currently frozen.
In terms of foreign policy, EU leaders will undoubtedly be quietly (or perhaps openly) pleased that Orbán blocked a €90 billion loan to Ukraine last year. If funds were now to be delivered, this could strengthen Ukraine’s defensive efforts and increase its leverage in negotiations with Russia.
As if these headlines were not enough, a meeting took place in Beijing last Friday between Xi Jinping and Cheng Li-wun, leader of Taiwan’s main opposition party. Following the meeting, China introduced a package of measures that appear positive for relations. However, the Taiwanese government responded with skepticism, calling the measures a sham. We expect further headlines regarding the implications of this meeting.
Geopolitics continues to shape market sentiment, with developments in the Middle East as the key driver. However, it is important to remain attentive to events elsewhere in the world and how they interact.
As for spreads, we believe that while corporate fundamentals remain strong, the balance between upside and downside risks remains skewed—with limited upside if things go well, versus a larger sell-off if they do not. We continue to focus on higher-quality credit while maintaining liquidity to take advantage of opportunities. However, it is unlikely that spreads will return to recent lows, given the increase in tail risks.
