What’s Driving Markets

1. The Iran War represents an exogenous supply shock with painful consequences and few opportunities for policymakers to respond. The situation remains highly fluid, with geopolitical developments marked by conflicting and often contradictory headlines. Reports of negotiations aimed at resuming cargo traffic through the Strait of Hormuz have been offset by indications that shipping activity remains effectively at a standstill, underscoring the fragility of the current backdrop. Policy signals have added to the uncertainty. President Donald Trump announced a temporary 10‑day pause in strikes on Iranian energy infrastructure—initially framed as being at Iran’s request—only for that characterization to be quickly denied. Subsequent headlines suggesting consideration of deploying an additional 10,000 US troops to the Middle East further complicated the outlook. The lack of clear, credible confirmation of de‑escalation has continued to drive headline‑driven volatility, with market attention remaining focused on the risk of further escalation rather than a durable easing of tensions.

Important Risks: Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. • Mortgage-related and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. The value of the underlying real estate of real estate related securities may go down due to various factors, including but not limited to strength of the economy, amount of new construction, laws and regulations, costs of real estate, availability of mortgages, and changes in interest rates. • Loans can be difficult to value and less liquid than other types of debt instruments; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment and insolvency risks. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political, economic and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets. • The risks associated with mortgage-related and asset-backed securities as well as collateralized loan obligations (CLOs) include credit, interest-rate, prepayment, liquidity, default, and extension risk. • Risks of focusing investments on the healthcare-related sector include regulatory and legal developments, changes in funding or subsidies, patent and intellectual property considerations, intense competitive pressures, rapid technological changes, long and costly process for obtaining product approval by government agencies, potential product obsolescence, rising cost of medical products and services, and price volatility risk. • Investments linked to prices of commodities may be considered speculative. • Diversification does not ensure a profit or protect against a loss in declining markets.

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