AFS Markets Blog: Morning 03/11/2026

• Meanwhile in markets, energy futures prices are off the lows after the US launched “self-defense” strikes on Iranian targets in the Strait of Hormuz. At the same time, diplomacy has been ramped up to prevent a return to war after the Midterms. Elsewhere, nobody cares about Belgium’s budget travails even though the member state is fiscally as much out of shape as France;

• Brent crude futures have risen to $106.5 a barrel, up a buck or so from Monday’s lows. Dutch natural gas futures are also off the lows, having rebounded to 97.5 euros per MWh. Still, crude futures prices are close to ten percent below Friday’s highs. Natural gas futures are seven percent below Friday’s Iran war highs;

• Diplomacy has gotten another lease of life on the back of intense attempts by Qatar and other mediator countries to prevent a return to war. Both President Trump and Iran’s Supreme Leader have publicly signaled that they want another shot at dealmaking. At the same time, the US has stepped up preparations for a new air strike campaign, sending a third carrier to the Gulf. Iran has threatened to escalate retaliation beyond the Gulf;

• According to the latest from the rumor mill (US outlet Axios, of course), President Trump’s cabinet is split on the way forward with Iran. Vice President Vance and Trump’s friend and special envoy Witkoff prefer a peace deal. Defense Secretary Hegseth and Israel’s Prime Minister Netanyahu advocate a return to war – no surprise here. Secretary of State Rubio, Treasury Secretary Bessent, and CIA Director Ratcliff want to freeze the conflict: neither war nor peace, and let the economic blockade choke Tehran further (as if the Iranians will stand by idly while the US ruins their economy);

• Furthermore, Reuters reported this morning that the US and Iran are far from reaching a deal. I would stress the following: diplomacy is clearly in overdrive, with the Chinese and even the Russians now involved (Russian President Putin had a well-telegraphed phone call with Iran’s influential security chief Mohsen Rezaei). What we need now to avoid a return to war is a deal about making a deal: agree to talk about reaching a deal in the weeks or months ahead. That’s a much lower hurdle to pass than an all-encompassing deal now;

• I take due note of a report in the Atlantic that Trump is sounding out friends and acquittances on the performance of Defense Secretary Hegseth and Chairman of the Joint Chiefs of Staff Caine. Trump was sold (and wanted to believe) that Iran would fold in short victorious war. With the Iran war costing the Republicans their Congressional majority and turn Trump’s presidency impotent, heads will surely roll. Though perhaps we might see Trump launch revenge strikes on Iran first;

• Elsewhere in markets, UST yields are bog steady in the Asian session, with yields across the curve at their lowest level since mid/late September. Asian stocks are mixed, with most markets except the Korea moving little. With AI worries returning, the Kospi is down a stiff 3.6%. The twenty AI stocks on our market screener are down 35% on average from their highs. Oracle, which is back again in the credit market’s crosshairs, is down more than fifty percent from its peak. And speaking of Oracle, the tech company’s promises of positive free cash flow aside, the CDS spread has started to soar again, rising to 300bps yesterday following a $10 billion equity offering at a discount of 11%;

• Belgian government bonds have barely budged on the government collapsing on Monday after it failed to agree on a budget. While Belgium losing its government again is certainly not new, Belgium’s expected headline budget deficit this year of 5.3% is in line with that of France. And Belgium’s debt-to-GDP ratio of 110% isn’t significantly lower than France’s 119%. More importantly, Belgium isn’t too big-to-fail, unlike France. Regardless, I think the market not bothering with Belgium is positive for OATs. Belgium’s spread not widening and Portugal’s spread widening on France tells me that the market over-reacted to France in the first place. Selling was indiscriminate. And now punters have just dozed off – re Belgium;

• While FX is a quiet affair this morning, EURCHF for some reason decided to take the plunge. I clock EURCHF at 0.914 or so, the lowest level since last Spring. CHF rallying is not your archetypical Eurozone haven flows to Swiss francs – there are now headlines that could explain such a move. The Swissie is also rallying versus the greenback;

• Looking ahead, eyes will be on the US midterms vote today. Democrats are very likely to take control of the House. And they stand a damn good chance at capturing the Senate too. However, because of the intricacies of voting system in individual states, it could take a week or more before we know who controls the Senate. Furthermore, Trump could launch lawfare if he’s not happy with the results. Besides the midterms, there’s a full batch of ECB-speakers scheduled for today. Post-ECB meeting, Governing Council members have leaned hawkish, with plenty of signals that there’s more tightening in store after a December rate hike. Which, for the record, isn’t even fully priced in.

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