The damage to the international bond market from the regional war is starting to show, with USD 2.5 tn wiped off global bond values this month alone, Bloomberg reports. Government, corporate, and securitized debt have fallen from USD 77 tn at the end of last month to USD 74.4 tn currently. The usual safe haven has been experiencing a rout for some time now as the conflict continues to escalate.

Government debt is leading declines, with a Bloomberg index of sovereign securities falling 3.3% during the month, surpassing the decline in corporate bonds by 3.1%, the data shows.

The culprit? An uptick in inflation is expected to erode the value of returns on bonds, making them suddenly not so attractive to investors. The US Federal Reserve’s recent decision to hold interest rates steady, and subsequent forecasts of a hike later in the year, is likely to add fuel to the inflation-concern fire and see the bond sell-off continue for the time being.

IN CONTEXT- Predictions for inflation growth have skyrocketed on the back of the ongoing war between the US/Israel and Iran. Look no further than the jumps seen in oil prices as more and more energy infrastructure is taken out and the movement, or lack thereof, of shipments through the Strait of Hormuz remains sticky.

Similar situations around the world are hammering home the fact that the implications of this war are anything but regional, with the US, Japan, the UK, India, Australia, New Zealand, and South Korea all seeing an uptick in government bond yields as anticipation of higher inflation hits the market. In New Zealand, yields are at their highest in nearly a year, while over in Australia, certain bonds are seeing the highest yields since 2011.

The impact is most stark in markets that are the most reliant on energy imports, with the UK seeing a sell-off of government bonds wiping off GBP 108 bn in market value, the business information service reported elsewhere. That marks the worst month for bonds since the rout that preceded the ouster of Prime Minister Liz Truss in 2022.

The phenomenon seems to be yet another manifestation of stagflation. We recently reported on this unfortunate cocktail of stagnating economic growth and inflation rewriting the hedging rulebook — and it seems markets are already pricing in that sentiment, analysts say.

MARKETS THIS MORNING-

Asian-Pacific markets are up in early trading this morning, rebounding from losses seen a day earlier after statements from US President Donald Trump ignited hope that we’re nearing the end of the regional war. Over on Wall Street, futures are in the red after a trading day that saw all major indices jump over 1%.

ADX

9,423

-1.6% (YTD: -5.7%)

DFM

5,383

-3.0% (YTD: -11.0%)

Nasdaq Dubai UAE20

4,367

-3.0% (YTD: +10.7%)

USD : AED CBUAE

Buy 3.67

Sell 3.67

EIBOR

3.5% o/n

3.8% 1 yr

TASI

10,946

+0.6% (YTD: +4.3%)

EGX30

47,612

+3.4% (YTD: +13.8%)

S&P 500

6,581

+1.2% (YTD: -3.9%)

FTSE 100

9,894

-0.2% (YTD: -0.4%)

Euro Stoxx 50

5,574

+1.3% (YTD: -3.8%)

Brent crude

USD 99.94

-10.9%

Natural gas (Nymex)

USD 2.91

+0.5%

UP

Gold

USD 4,453

+0.3%

BTC

USD 70,588

+4.0% (YTD: -19.4%)

Chimera JP Morgan UAE Bond UCITS ETF

AED 3.60

+1.4% (YTD: -4.0%)

S&P MENA Bond & Sukuk

149.15

-0.6% (YTD: -1.8%)

VIX (Volatility Index)

26.15

-2.4% (YTD: +74.9%)

THE CLOSING BELL-

The ADX fell 1.6% yesterday on turnover of AED 1.1 bn. The index is down 6.8% YTD.

In the green: Fertiglobe (+5.7%), ADNH Catering (+3.4%), and Apex Investments (+2.9%).

In the red: Americana Restaurants International (-5.0%), Pure Health Holding (-5.0%), and First Abu Dhabi Bank (-5.0%).

Over on the DFM, the index fell 3.0% on turnover of AED 1.0 bn. Meanwhile, Nasdaq Dubai is also down 3.0%.

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