Capitals, April 5 (SANA) – The ongoing American-Israeli and Iranian conflict, now in its 37th day, continues to exert profound pressure on the global financial system. The repercussions have expanded from energy markets to bond markets, which have seen a sharp decline in sales since the outbreak of hostilities in late February.
The wave of instability has reached financial centers in London and Washington, with economic reports indicating significant tremors in U.S. Treasuries as well as government bonds in the UK and Europe.
Declining Bond Sales and Liquidity Crunch
Federal Reserve data reveals a series of weak auctions for U.S. Treasuries. Since the start of the conflict, central banks worldwide have sold approximately $82 billion in these bonds. This trend has brought total holdings of U.S. Treasuries to $2.7 trillion, the lowest level since 2012.
Economic analysts suggest these sales reflect an urgent need for liquidity among central banks during times of geopolitical turmoil, rather than a purely political stance. This liquidity drive also explains why some banks have moved to sell gold reserves simultaneously.
Hedge Funds and Market Risks
Studies from the Federal Reserve Bank of New York indicate that hedge funds have emerged as the largest foreign buyers of U.S. Treasuries, overtaking traditional holders like China and Japan. By the end of 2025, long positions held by these funds reached $2.4 trillion, driven by basis and swap trades.
However, experts warn that any sudden shift in financial fundamentals—such as an interest rate spike—could trigger a mass exit by these funds, threatening global financial stability similar to the shocks witnessed in March 2020 and April 2025.
Warning of Widespread Economic Shocks
In Europe, British government bonds have been among the hardest hit. Hedge fund bets on interest rate cuts were derailed by the sudden surge in oil prices, which brought inflation back to the forefront.
The current developments serve as an early warning of how commodity price shocks can transition into debt market crises, placing immense pressure on British and European public finances. With the continuation of the conflict and the persistent threat of Iranian attacks on energy facilities in the Gulf and the closure of the Strait of Hormuz, the stability of the bond market remains precariously dependent on geopolitical developments and the behavior of large-scale hedge funds.
Kh.A
