With the conflict between Israel and Hamas about to escalate, investors appear more preoccupied with domestic issues than the prospect that the conflict could draw in other parties.
It is either disconcerting or reassuring that, even with the Middle East a tinder box after the Hamas raid on Israel, global financial markets show so few significant signs of stress.
After one of its most turbulent weeks in recent history, yields in the US bond market have eased slightly over the past week but remain elevated, suggesting that if there has been any rush towards the traditional global haven, it has been a muted one. Whether the apparent complacency of investors is warranted or not may soon be exposed, with Israel poised to test Iran’s resolve.
Yields had spiked after a stronger than anticipated inflation report last week strengthened the likelihood that US rates would remain higher for longer and a very weak $US20 billion auction of US 30-year bonds – demand for them was anaemic despite the highest yields on offer since 2007 – suggested that the sheer scale of the supply of bonds was overwhelming demand.
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