The Compass - The Inaugural Edition

THE COMPASS March 2026

The most interesting macro environments are not the ones that shock you, they are the ones that shift gradually until the assumptions underneath your framework require a second look. Inflation remains sticky, the forward path of interest rates is increasingly opaque, macro noise remains elevated, geopolitical risks mount, and sell-side forecasts for the probability of a recession average ~30%. And yet, the core challenge is unchanged: putting capital to work in quality assets, at reasonable returns, is as hard as ever. The institutions making progress are expanding their playbook. Welcome to the inaugural Caird Compass. We are practitioners who have sat on your side of the table, and we will write like it. The Caird Team

From the Caird Team Pricing in the Unknown Each month we’ll strive to highlight a novel perspective or datapoint we believe is worth considering. As content consumers, we find ourselves idly scrolling through newsletters that are effectively market recaps. While that may happen from time to time (apologies in advance), we like data and we like distinctive perspectives. So, with that in mind: the risk of stagflation, shaky equity sentiment, and assets that feel “same-way”. How do markets perform in that scenario? The data currently warrants that second look. With a combination of macro data and the help of Claude, we used the absolute level of the VIX as a proxy for equity sentiment, the correlation of change in the MOVE & VIX as a proxy for cross-asset relationships, and the difference between ISM Prices Paid and ISM New Orders as a proxy for the risk of stagflation. Those figures place in the 77th, 81st, and 95th percentiles v. historic levels, respectively. We then cut the data into three buckets: “Calm” (all three metrics below the median, 40 observations), “Mixed” (one or two metrics above the median, 246 observations), and “Stress” (all three above the median, 41 observations). There are problems with this framework, notably including observation count and lack of tie to valuation metrics, but the takeaways are statistically reasonable and remain compelling. The charts below show the full distribution for each bucket; the visual makes the point but the full methodology is in the footnotes for the curious. The Calm bucket returned an average of ~10.5% over the following year (σ: ~10.6%) while the Mixed bucket returned an average of ~10.7% (σ: ~15.5%); about the same returns with a modest increase in volatility. And while not shocking directionally, the Stress bucket nevertheless surprised us: returns average ~550bps lower than the Calm and Mixed buckets. But even more interestingly, the underperformance accompanies a standard deviation of ~24%, nearly 2.5x the volatility of the Calm bucket. While this analysis is focused on equities, we believe the conclusion transfers to other markets and Nassim Taleb would be proud: tails are fatter than markets are likely pricing. The Sharpe Ratio for the Stress bucket is only a hair better than owning Treasury Bills outright. Caird View: Within liquid markets, our positioning reflects a preference for higher quality and liquidity over yield optimization, including reducing higher-beta exposure that has held up well despite broader market volatility.

By the Numbers 24bps Agency MBS Option Adjusted Spread Near historic tights as of March 31st 5.2% 1Y Inflation Breakeven Vs. low 3% economist estimates as of March 31st ~30–40bps Middle-Market CLO AAA Spread Widening Since private credit headlines in Q1 ~6bps/day Implied Daily Rate Move 77th percentile since 2010; based on MOVE Index at 96 on March 31st

Market Signals WATCH Rates & Inflation Breakevens diverging from economist forecasts; IG and High Yield credit markets lagging and uncertainty is elevated Inflation breakevens have moved sharply higher — 1Y to approximately 5.3%, 2Y to approximately 3.3%, yet economist PCE forecasts remain anchored in the low 3% range. The OECD revised its U.S. 2026 inflation forecast to 4.2%, up from 2.8% in December. The market is pricing materially more inflation risk than consensus models suggest. Meanwhile, IG credit spreads have only widened modestly and high-yield remains inside 400 basis points, even as equity and rate volatility have repriced sharply. Add Brent crude at or above $110/bbl (and changing rapidly) and the already opaque macroeconomic picture grows muddier still. OPPORTUNISTIC Private Credit Headline stress creating second-order opportunities along with the potential for reflexivity High-profile credit stress, elevated PIK usage, and mounting redemption pressure are drawing broad market attention. The most direct second-order impact is on lender finance, where terms have softened and middle market CLO spreads have widened 30 to 40 basis points since December. Caird remains selective/constructive and do not believe that the risk to banking or capital markets is systemic but we do believe the risk of reflexivity is valid. Attachment points and structural protections are significant, and we have yet to see a true parallel to leverage-on-leverage as seen with CDO² transactions during the GFC, let alone similar magnitude in asset quality degradation at scale. INFLECTING Liquid Term Loan B Market Spreads compressed but dispersion accelerating; conditions are favoring nimble capital Absolute spreads remain modestly tight; but this is changing. Broader market volatility, selling pressure, and a widening CLO primary market suggest conditions are positioned for spread expansion as macro headwinds persist. After nearly a year of par or near par-level trading, single-name dispersion is increasing. We view the emerging opportunity as a forthcoming opportunity for our bank clients. CONSTRUCTIVE Securities Non-agency RMBS, GNPLs, and CLO senior tranches offering relative value With investment-grade corporate and agency RMBS option-adjusted spreads near historic tights along with rate volatility, non-agency RMBS AAAs, CLO AAA/AA tranches, and GNPLs present comparatively attractive risk-adjusted returns, subject to individual institution liquidity and capital considerations. Broader market volatility is beginning to create a wider opportunity set in these asset classes.

Three Things We Are Talking About 01 DOWNSIDE PROTECTION OVER YIELD OPTIMIZATION This is not an environment to reach for spread. With the range of macro outcomes as wide as it is, the institutions deploying capital well are underwriting for downside: low leverage, hard asset collateral, and predictable cash flows. That framework sets up the rest of what follows in this letter. 02 CLOs IN LOAN FORM: REGULATORY OVERHANG IS LIFTED The SEC’s January “No Objection” letter confirmed these tranches classify as C&I loans, not securities. AAA and AA tranches carry 20% risk-weighting and historically have not taken a principal loss. With agency RMBS duration risk near multi-year highs and option-adjusted spreads at ~20bps, the floating-rate spread pickup and reduction in duration is well-timed. 03 PRIVATE CREDIT STRESS: REAL, NOT SYSTEMIC BDC gate activity is drawing attention. The 2008 comparison is tempting but imprecise: private credit lacks the layered synthetic leverage that turned subprime losses into a systemic event. Underwriting is real, structural leverage is limited, and the dislocation is creating opportunity. Banks with BDC or NDFI exposure should review concentration, not panic.

What We Are Hearing From Our Clients Three conversations dominating Q1 “How do we grow C&I without chasing the same credits as everyone else?” Competition for C&I loans to established corporate borrowers remains intense, and pricing reflects it. Institutions making meaningful progress are expanding sourcing into liquid TLBs, bilateral direct lending transactions, and asset-backed structures that carry C&I balance sheet classification but originate through distinct channels. “The regulatory mood has shifted — but how far, and will it hold?” The regulatory posture has shifted toward greater flexibility across multiple dimensions. The OCC has adopted a principles-based framework for leveraged lending and raised the community bank asset threshold from $10 billion to $30 billion. Additional balance sheet flexibility appears forthcoming. Clients are cautiously constructive, though mindful that the regulatory trajectory could shift with future administrations. Several proposals remain in the formal rulemaking process, and the durability of specific guidance will vary by examiner and institution. “What does uncertainty in Fed rates mean for my securities portfolio?” This is not an environment conducive to directional rate positioning. With the MOVE index at ~90 and the Fed potentially on hold or hiking, the outcome distribution for long-duration fixed-rate assets is wide and asymmetrically skewed to the downside. Portfolios concentrated in agency RMBS carry material duration risk with option-adjusted spreads that do not adequately compensate for that exposure. CLO AAA and AA tranches are floating-rate instruments carrying 20% risk weighting (identical to agency RMBS), have not experienced a principal impairment, and offer meaningful spread premiums over comparable alternatives. Non-agency RMBS AAAs and Ginnie Mae Project Loans further reduce portfolio concentration while preserving credit quality.

Chart of the Month Dispersion is increasing — starting the year, 56% of B1-B3 rated loans were trading above par, as of March 31st, this declined to 34%. Disciplined underwriting remains as valuable as ever, but opportunity is increasing alongside. Source: Bloomberg. Includes all broadly syndicated term loan Bs domiciled in the U.S. with >$500mm outstanding, rated B1 to B3 as of 12/31/2025 and 3/20/2026.

The Caird Perspective The C&I Opportunity Is Broader Than Most Banks Recognize Banks remain under sustained pressure to grow C&I portfolios. While CRE exposure remains readily accessible, C&I asset growth continues to prove difficult amid intense competition. Spreads are compressed, competition is concentrated, and the highest-quality credits are frequently committed well in advance. What remains underappreciated is the breadth of the addressable C&I universe beyond traditional bilateral lending. A strategic liquid Term Loan B allocation provides banks with senior secured exposure to performing companies, carrying C&I classification on the balance sheet, while often offering stronger structural protections and secondary market liquidity than a comparable bilateral relationship loan. The market for TLBs among bank buyers has historically been underpenetrated, precisely because it requires differentiated sourcing and underwriting infrastructure. Based on our dialogue with institutions across the sector, that dynamic is shifting. The most critical aspect of this allocation is that it is tailored to each institution’s specific objectives, risk parameters, and balance sheet needs. The portfolio also offers meaningful liquidity—if an institution’s needs evolve, positions can be adjusted without the friction inherent in bilateral workouts or held-to-maturity constraints.

Highlighted Deal — Private Credit $90MM Construction Loan · Closed December 2025 Limestone Quarry Construction Facility, West Texas Caird closed a $90 million senior secured credit facility to fund the construction of an aggregate production and distribution facility in West Texas, in partnership with a private investment and advisory firm. The transaction was sourced, underwritten, and structured on a bilateral basis, underpinned by hard asset collateral. This transaction illustrates the proprietary bilateral origination capability Caird provides to bank and private credit partners seeking differentiated capital deployment channels. Our current pipeline skews toward hard assets, equipment finance, and select tax credit and tax lien opportunities—structures offering strong collateral coverage and predictable cash flow profiles. Our underwriting process is selective by design: for every active deal in our pipeline, we have reviewed and passed on nearly two others. Every deal presented to partners has cleared a rigorous internal underwriting filter.

Caird Team Update Where We Have Been and Where We Are Headed The Caird team attended the SFIG conference in Las Vegas and has upcoming client engagements in Chicago and California. We look forward to the TBA Annual Convention in Dallas, where we will host a reception for banking partners on May 19th. From the Team: On a lighter note, March Madness has consumed the Caird office. Our internal bracket competition has been fierce and the stakes are real. The last-place finisher faces their punishment: a three-minute speech at our next pipeline meeting recounting their failures as a coach, what went wrong with their bracket, and lessons learned for last year. He or she may also be running the J.P. Morgan Corporate Challenge in a 30lb. vest. We will report back next month on the outcome. Some of us are more nervous than others (Matthew, Kari).

The Caird Team info@cairdinvestments.com · 469-729-0530 cairdinvestments.com · LinkedIn Caird Investment Partners, LLC is a SEC registered investment adviser. This content is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Opinions expressed are as of the date of publication and are subject to change without notice. Past performance is not indicative of future results. There can be no assurance that Caird will implement its investment strategy or that it will lead to investor returns. There is no assurance that any portfolio construction objectives can be achieved or that any such portfolio will be profitable. Diversification does not eliminate the risk of loss. Actual results may vary materially and adversely. No assurance can be given that any pending investment opportunity will be consummated within the expected time frame, or at all. References to any particular investment should not be considered a recommendation by Caird. Final terms set forth in a written agreement will prevail. The framework discussed herein is hypothetical and does not represent the investment performance or the actual accounts of any investors or any Caird funds, nor does it represent any investment strategy currently being pursued by Caird. This framework represents the historical backtesting of the S&P 500 to illustrate equity sentiment and the performance of the market under specific scenarios. This transaction does not represent a complete list of transactions, is not indicative of future outcomes, and should not be viewed as a recommendation or performance metric. A full list of Caird’s investments is available upon request. Certain information contained herein has been obtained from third-party sources. Although Caird believes the information from such sources to be reliable, Caird makes no representation as to its accuracy or completeness. There can be no guarantee that the use of algorithmic tools and/or large language models as part of the investment process will lead to investor returns. Algorithmic tools and/or large language models may contain errors or inaccuracies, and should not be relied upon as a substitute for professional judgment.