Iran's war creates a global monetary policy headache. Central banks must choose between inflation fighting and growth support.

The Big Picture Jim McCormick, Citi's head of macro strategy, spots an immediate problem. Geopolitical conflicts typically pressure commodity prices, especially energy. This arrives at a delicate moment—many economies still battle residual inflationary pressures.

The expected response is dual-track. Asian central banks will likely delay or reduce monetary tightening. Simultaneously, governments will deploy more fiscal spending to cushion the economic blow. This combination—less monetary restraint, more fiscal stimulus—is the classic recipe for steeper yield curves.

“Less monetary tightening plus more fiscal support equals steeper yield curves.”

Why It Matters For investors, a steeper curve changes the game. Long-dated bonds offer higher relative yields versus short-term ones. This directly impacts pension funds, insurers, and any portfolio with fixed-income exposure.

The real estate sector feels the impact immediately. Fixed-rate mortgages typically track the trajectory of 10-year bonds. If those yields rise, financing gets more expensive. Development projects get reconsidered, purchases get postponed.

REITs, particularly those with high debt loads, face pressure on their funding costs. A higher-rate, steeper-curve environment rewards managers with strong balance sheets and punishes the leveraged ones. Selectivity will be key in 2026.

The Bottom Line Watch for upcoming Asian central bank decisions. Any signal of a pause in tightening will confirm McCormick's thesis. In real estate, favor developers with low leverage and REITs with fixed-rate debt. The curve is moving—adjust your portfolio accordingly.