The 7th annual RBC UK Bank & Building Society Treasury Day convened against a backdrop of unprecedented volatility, bringing together 90 attendees from 32 companies to discuss how recent Middle East tensions are fundamentally altering market dynamics and investment strategy. What emerged was a nuanced picture: while headlines dominate, the underlying structural health of markets remains surprisingly resilient.
From optimism to caution—the rapid repricing of monetary policy
Just weeks earlier, the Bank of England had signaled a dovish outlook at its February meeting, with markets pricing in two rate cuts for 2026. Today, the conversation has shifted dramatically. As explained by Cathal Kennedy, energy price shocks and potential persistent inflation have forced a complete repricing. The market is now pricing in rate hikes rather than cuts, yet this may represent an overcorrection. Kennedy emphasized a critical distinction: unlike 2022, today's UK labor market is significantly looser, inflation is falling rather than rising, and supply concerns are less acute domestically. The bank faces a difficult balancing act—maintaining an easy bias while acknowledging upside risks.
RBC BlueBay’s Russell Matthews reinforced this view, characterizing current gilt valuations as overshoots that present compelling opportunities for tactical positioning. They've reduced risk but maintain exposure, positioning to capitalize on dislocations if spreads widen further. This encapsulates the mood: cautious optimism tempered by headline-driven volatility.
"It's really been wage demands since 2022 that have shall we say sustained the imprint of that energy price shock of 2022 through the economy."
Cathal Kennedy, Senior U.K. Economist, RBC Capital Markets
Supply chains, not geopolitics, drive market concerns
While news coverage focuses on military escalation, market participants are fixated on something more prosaic: the Strait of Hormuz. Matthews highlighted that 20% of global oil flows through the Strait, alongside comparable volumes of LNG and fertilizer. Supply disruptions here pose real economic consequences, particularly for Asia. Yet the oil futures curve, trading in severe backwardation, suggests markets expect normalization relatively quickly. This technical signal—where forward-looking contracts remain significantly lower than spot prices—reveals an underlying confidence that the current situation is temporary.
Speakers underscored another crucial difference from 2022: the UK is far less dependent on Middle Eastern energy than it was during the Russia-Ukraine crisis. European periphery concerns, by contrast, have become more acute. This reality check shifted the conversation from existential worry to measured risk assessment.
"I don't think it's necessarily in the hands of Donald Trump to what extent this conflict in the Middle East persists. It's probably grown a little bit outside of the scale that the initial objectives hoped for."
Andy Gowans, SSA Trading, RBC Capital Markets
SSA markets prove their worth during stress
Perhaps the most reassuring narrative of the day centered on sovereign and supranational organisations. Elena Panomarenko (IFC) and Liam Carden (AIIB) reported that issuance has continued smoothly, with funding programs well advanced and investor demand robust. AAA-rated issuers have demonstrated remarkable stickiness during periods of uncertainty—a feature of these institutions that investors value precisely because of their defensive characteristics.
The trading panel emphasized that SSA spreads remain at historically tight levels relative to government bonds, even amid volatility. Andy Gowans noted that while spreads in other credit markets have widened, SSA spreads have remained "bulletproof," reflecting their status as preferred holdings during uncertain periods. For bank treasurers facing regulatory pressure to diversify, SSAs continue to provide both yield and safety.
"What’s important for us going forward is keeping enough dry powder to enter attractive opportunities, and also in primary markets...we're seeing SSAs at historically tight spread levels to government bonds."
Madeleine King, Treasury Services, RBC Capital Markets
Market structure and new participants shape outcomes
A quieter but significant theme involved evolving market participants. Gowans highlighted increased inflows from Asian banks, particularly Chinese institutions, diversifying away from US Treasuries as a natural consequence of reserve accumulation and geopolitical hedging. These flows have supported liquidity and driven oversupply in certain segments, particularly sterling SSAs, which saw oversubscription rates climb to three times in some cases.
Elena Panomarenko highlighted an innovative development: IFC's partnership with RBC and Winterflood to distribute bonds to retail investors in the UK. This represents a structural shift in who participates in these markets, broadening the investor base and potentially supporting prices through cycles.
Nimbleness replaces strategic positioning
Finally, a recurring theme from treasury professionals was the shift from long-term strategic positioning to tactical nimbleness. Madeleine King articulated her current approach: maintain dry powder, keep portfolios well diversified, and strike when dislocations emerge. With spread levels compressed entering 2026, investors are reluctant to commit capital at current levels, waiting for opportunities. This collective patience—combined with front-loaded funding programs by SSA issuers—suggests an orderly market rather than the chaotic dislocations that might otherwise be expected.
