London/New York/Singapore – Web Desk: The ongoing war in Iran has sent shockwaves through global financial markets, increasing volatility and disrupting trading across bonds, gold, oil, and currency markets, according to investors and traders.
Market makers and investors have grown increasingly risk-averse, slowing transactions, widening bid-ask spreads, and reducing liquidity in some of the world’s largest and most liquid markets, including U.S. Treasuries and European government bonds.
Rajeev De Mello, Chief Investment Officer at GAMA Asset Management, said market makers are splitting trades into smaller sizes due to uncertainty, making it costlier and slower to execute trades. Various volatility indexes for stocks (.VIX), bonds (.MOVE), oil (.OVX), and gold (.GVZ) have surged to levels not seen since prior market crises.
European futures markets for short-term interest rates have been particularly affected, with liquidity at times dropping to 10% of normal levels, according to Morgan Stanley. Hedge funds dominating European bond trading have amplified market stress by rapidly unwinding positions, further widening bid-ask spreads.
Regulators have issued warnings about the impact of geopolitical tensions on market stability, citing rising energy prices, potential inflationary pressures, and weaker economic growth as risks. Despite higher trading volumes in some sectors, analysts say much of this activity reflects forced unwinds rather than investor confidence.
In the gold market, traditionally a safe haven, market makers at times refrained from trading altogether, reflecting broader uncertainty and risk aversion. Meanwhile, Treasury spreads for newly issued two-year U.S. notes have widened roughly 27% in March, signaling higher premiums for taking on market risk.
Financial experts caution that if the Iran conflict persists, markets could see deeper corrections, particularly in over-leveraged sectors, as liquidity constraints continue and investor caution dominates global trading behavior.
