Bonds Reacting to Israel-Gaza Conflict
News of the Hamas bombing of Israel dominated headlines after markets closed last week. As the situation escalated over the weekend, financial market had motivation for volatility as the new week began. Bond market gains were relegated to the futures market, and while that trading implied lower yields, those sorts of overnight/holiday moves are never guaranteed to stick around by the time cash trading is back online. In this case, however, the gains stuck. Along with gains in stocks, they speak to the belief that uncertainty surrounding this conflict is another reason for the Fed avoid additional rate hikes. When war breaks out, there’s always some wisdom in expecting Treasuries to benefit from safe-haven buying. It’s likely a factor in the current gains, but perhaps not the most important factor. If it were, we would expect to see stocks moving lower. The fact that they’re rallying well, and with strong inverse correlation versus Treasury yields suggests the Fed accommodation trade is the bigger factor.