The Wrap: Trump, Inflation and the Term Structure of Interest Rates

In this week’s edition of “The Wrap,” we feature our view of the top events in Washington and on Wall Street over the past week. Don’t forget to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. 

"The dollar is our currency, but it's your problem"

Treasury Secretary John Connally (1971)

March 27, 2026 | The top news this week is obviously the Iran war with the US and Israel and how this conflict will impact financial markets and the global economy. But this 21st Century conflict is also a religious war with roots which stretch back centuries. While Iran was never formally colonized, the fall of the Shah of Iran in 1979 and the rise of radical Islam marked an end to centuries of struggle against foreign influence and colonial schemes by Russia, the European powers and the United States.

President Donald Trump has decided to put his signature on US currency, yet a surreal atmosphere prevails in the Capital. None of the news reports this week seem yet to be focused on the long-term damage done to the global economy or to millions of people, issues we’ll be discussing next week in an exclusive interview in The IRA with John Dizard. Advisors and analysts have been reluctant to base recommendations on the long-term consequences of the conflict, but as time goes on the economic damage from the war will become impossible to ignore.  

Beyond the news from the Middle East, investors are continuing to raise cash as a risk-off trade is predominating among markets and demands for redemption of private credit funds grow. Even Lloyd Blankfein, the former chairman and CEO of Goldman Sachs (GS), remains wary of systemic "kindling" due to the unwind of private credit which we discussed earlier this week (“Mortgage Market Notes; A Lehman Moment for Apollo Management?”). 

This week Ares Management (ARES) and Apollo Global Management (APO) blocked investors from withdrawing all requested funds, with Ares capping redemptions at 5% after requests surged to 11.6% in its Strategic Income Fund. The actions by ARES and APO to suspend redemptions follow similar actions by Blue Owl Capital (OWL) and Cliffwater in recent weeks.

Concerns are also escalating regarding loan quality, with defaults in direct lending expected to rise from 5.6% to 8%, according to Morgan Stanley (MS). The reputation risk to the private credit sponsors is of equal concern, but does reputation matter on Wall Street any longer? The mad rush for assets and returns have largely eviscerated traditional investment rules.

Global prices for crude oil have repeatedly moved above $100 per barrel as markets react to supply disruption risks and related inflationary concerns. These dynamics have also pushed Treasury yields higher and widened the term structure of interest rates as markets price in greater inflation risk going forward. Mortgage rates in the US, for example, rose for the fourth straight week and new loan coupons are approaching 6.5%.  

The concern about the economic impact of the war and the need for Middle East investors to raise cash has pushed down prices for gold and silver, while oil and other commodities have benefitted. Gold and silver are still up double digits for the last year and over the past six months, but have significantly paired gains from earlier in 2026. 

The key comment to make about the markets this week is that it is difficult to allocate capital to new strategies when investors are dealing with inadequate information. The pause by the Federal Open Market Committee and the continued selloff in tech stocks is another important part of this week’s narrative. Will the FOMC be forced to cut ST rates in April to get ahead of the sustained economic shock of higher oil prices?  We think the answer is yes.

We also believe that the relative stability of the past decade in terms of risk and the rapid change in events following the Iran war have caught markets by surprise, making it difficult for investors to select investment choices other than moving to cash. The fact that the US fiscal situation has caused the term structure of interest rates to expand is a great argument for precious metals and other hard assets.

Term Structure of Interest Rates Expands

The term structure of interest rates is heavily influenced by rising inflation fears, geopolitical tensions in the Middle East, and a shifting Federal Reserve policy outlook. Bond market experts are noting a sharp increase in Treasury yields, particularly at the short end. Fifteen years after 2008 and the related actions by the Fed, interest rates are starting to reflect fiscal pressures.

For instance, economist Steve Hanke pointed out this week that the March 2026 US Treasury 2-year yield hit 3.93%, marking a significant rise from 3.45% in the previous month. But, again, the shift in the term structure of interest rates, shown below in the widening of corporate bond spreads in the chart from Fred below, is particularly worrisome. As Katie Martin of the Financial Times wrote today, corporate bonds are the new stocks.

“What really matters for free enterprise, we know (since Smith wrote his 1776 book), is the impact of rising base rates and credit spreads to depress the PV of future cash flows (shifting more than the minimum cost to finance leverage for growth from owners of equity to creditors),” notes our friend and co-author Fred Feldkamp.

“Since the start of the Iran war, base rates are up 48 bps and spreads (the six rates I use) are up 80 bps, for a total impact of 128 bps.  The impact on EBITDA to support equity is roughly $5 billion per bp.  At an EBITDA multiple of 8-1, each bp reduces equity valuations by $40 billion.  SIMPLY STATED, the “cost” of the war now stands at $5.12 trillion in reduced “fair value” of US investments. ARE WE HAVING FUN YET?”

The diminution of value in the financial markets is the corollary to the shift in terms structure of interest rates. “A world where the expected long-term rate is closer to 4% than 2% fundamentally changes the term structure of interest rates, cost of capital, expected returns,” notes Bob Elliott, CEO and CIO of Unlimited Funds.

He continues: “Many folks looking at today's long-rates are just assuming a return to the "normal" of the last 15yrs.”  As we’ve noted to readers of The IRA, 2025 was an extraordinary year in many respects, but 2026 may be the opposite in many ways.

In an interview this week with Kitco News, Nitesh Shah, head of commodities and macroeconomic research at WisdomTree, said the recent selloff — which has seen gold prices drop more than $1,000 from peak levels — appears largely disconnected from macroeconomic fundamentals and instead reflects a combination of positioning shifts and forced liquidations.

Shah continued: “People have been asking me for years, ‘I like gold but I’m looking for an entry point.’… This is probably what they were waiting for,” he said. “If you’re not going to buy at this time, you’re never going to buy in your life.”

Reader Questions

This week a reader asked about a frequently mentioned issuer, Annaly Capital Management (NLY), given the move in interest rates since the start of the Iran war. We have a long-term position in NLY and may add to the position if the stock weakens. The key point to remember about NLY and other mortgage REITs is that they profit from spreads between long and short-term interest rates rather than the absolute interest rate at a given time.

REITs raise capital in the equity markets via common and preferred stock, then access leverage in the repo, swaps and forward mortgage markets. The mortgage securities owned by REITs tend to trade off of longer-term Treasury securities such as the 10-year Treasury note. Unlike property REITs that invest in commercial property, mortgage REITs typically are not issuers of LT debt.

So while short-term interest rates like the two-year Treasury note have risen in the past week, longer-term Treasury maturities have also backed up. A key relationship to watch if you own NLY is the spread between 2s and 10s in the Treasury market, as shown in the chart below from FRED. Notice that two-year Treasury notes were above 10s in yield for an extended period of time during 2023 and 2024.

The Wrap with Chris Whalen

The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.