The Iran deal changes the inflation picture. Here’s what it means for your portfolio.
The Signal
Something that seemed months away has now arrived: a formal ceasefire framework between the United States and Iran, and with it, a meaningful shift in the macro backdrop investors have been navigating since February.
The 60-day framework rolls back sanctions on Iranian crude, opening dollar-denominated trade in Iranian oil for the first time in more than four decades. Iran also confirmed it will impose no tolls or fees on vessels transiting the Strait of Hormuz. WTI crude pulled back significantly from conflict-driven highs, settling near $71 a barrel. National average gasoline prices dipped below $4.00 for the first time since March, the first tangible sign that energy may be transitioning from headwind to tailwind.
Treasury yields have followed. The 10-year is trading around 4.38%, down from approximately 4.54% two weeks ago. Municipal fund flows remain firmly positive: investors added $1.23 billion in the week ended June 17, following $1.78 billion the prior week. We continue to see current yield levels as a favorable entry point for quality-focused investors.
We have been guiding clients through the Iran accord volatility for months, tracking each signal and reversal as rates and energy prices responded. The formal framework arrived this week, and the positioning we have maintained through the uncertainty continues to serve clients well.
What’s Driving It
The Iran ceasefire reshapes the energy equation.
The 60-day ceasefire is the most significant macro development since the conflict began. The accompanying sanctions rollback is returning Iranian crude to global markets after decades of restriction. WTI has settled near $71 a barrel and national gas prices have crossed below $4.00. This matters for the inflation narrative because energy had been the primary driver of the CPI spike we discussed throughout the spring. The relief is real. It is also conditional: oil markets are already pricing in the possibility that the ceasefire does not hold, and a 60-day window is not a permanent resolution.
New Fed Chair Warsh sets an inflation-first tone.
Kevin Warsh made the Fed’s priorities explicit at his first policy decision on June 17. The Fed held rates steady at 3.50 to 3.75 percent, but Warsh removed prior forward guidance and referenced “price stability” twelve times during his press conference. Goldman Sachs Asset Management described his tone as a clear signal that fighting inflation in the short term is the priority. The 2-year Treasury hit a new 2026 high near 4.23% in response. As of today, traders assign approximately a 68% probability of a rate hike at the September meeting, up from 29% a week ago, and meaningfully ahead of the year-end timeline the market was pricing two weeks ago.
Treasury yields have retreated, and Friday’s PCE data will be the next signal.
The 10-year has pulled back to 4.38% from a recent high of approximately 4.54%, and the 2-year sits near 4.10%. The yield curve has steepened modestly but continues to signal no cuts in the near term. Friday’s PCE report, the Fed’s preferred inflation measure, will be critical in confirming whether the September hike probability holds or compresses further. US business activity showed resilience this week, with the S&P Global flash composite PMI rising to 52.2 in June, the fastest pace of expansion in five months.
The muni market is absorbing supply well, and infrastructure issuance is setting records.
New issuance continues to be absorbed without disruption. Visible supply sits at $13.9 billion this week, slightly below the year’s average of $14.9 billion. Notable deals included a $1.57 billion State of Georgia issue and a $400.7 million Permanent University Fund for the Texas A&M University System. The AAA BVAL 10-year benchmark sits at 2.91%, with the 30-year at 4.14%.
On the infrastructure side, water and sewer bonds are on pace for a record year: more than $21 billion issued so far in 2026, the most for this period since 2015, as utilities rush to upgrade aging infrastructure ahead of a potential pullback in federal funding. California lawmakers also agreed this week to place an $11.3 billion housing bond on the November ballot, reflecting the broad demand for infrastructure financing at the state and local level.
Our Take
The Iran ceasefire is the most consequential macro development in months, and the market has moved accordingly. But this is a 60-day framework, not a permanent resolution, and the investment case should not rest on the assumption that energy relief will be sustained indefinitely.
The two inflation drivers we have tracked through this period are now diverging. If the ceasefire holds, Iranian crude returning to global markets could shift energy from the CPI’s primary headwind to a modest tailwind over the coming months. The AI-driven cost pressures on technology and data center supply chains are unlikely to resolve on the same timeline. That asymmetry matters for how persistent inflation remains, and how Warsh calibrates the September decision.
New home sales fell 7.3% in May to their lowest level since the start of the year, a reminder that the rate environment is extracting real costs from the broader economy. The Fed has reasons to be cautious, even as inflation remains Warsh’s stated priority. Friday’s PCE data will be the first real indicator of whether energy relief is already feeding through to headline numbers, and what that means for September.
Municipal bonds continue to demonstrate the resilience we have described to clients throughout this period. Fund flows are positive, issuance is being absorbed, and credit fundamentals remain strong. Yield levels on high-grade paper continue to compare favorably on a taxable-equivalent basis. We maintain our focus on essential-service and insured paper, and we see current levels as a favorable entry point.
Recommendations
Stay positioned in high-grade munis at current yield levels
Yields above 4.40% on high-grade issues remain a compelling entry point. Fund flows are positive, new issuance is being absorbed, and credit fundamentals are strong. We continue to be buyers.
Watch Friday’s PCE release
The Fed’s preferred inflation measure will be the first indication of whether the Iran energy relief is feeding through to headline numbers. If it is, the September hike timeline may ease. If it is not, Warsh’s calendar gets more compressed. The number matters for your positioning.
Continue favoring essential-service and infrastructure paper
Water and sewer bonds are on pace for a record year in 2026, with more than $21 billion issued already. Essential-service issuers carry implicit backing that goes beyond their credit ratings, and the current supply cycle reinforces that sector’s long-term relevance for quality-focused investors.
Reach out if you’d like to discuss this in the context of your portfolio
The rate environment is shifting faster than many anticipated, and the taxable-equivalent math on high-grade munis has real implications for your specific situation. We are actively watching and prepared to act.
Let’s Talk
If you would like to discuss any of the above in the context of your portfolio, reach out. This market environment rewards preparation — and that is exactly what we are here to help with.
