Insights 
VT 
Violence has persisted between Israel and Iran as both countries continue to launch attacks, heightening the possibility of a broader regional conflict. Iran’s recent missile strikes are the most extensive so far, targeting significant areas in Israel. Meanwhile, Israeli forces have conducted operations against missile sites and Revolutionary Guard facilities in Iran.
In the financial sector, gold prices have increased as market participants seek safety amidst the volatile geopolitical landscape. Oil prices initially rose but later fell as the risks of escalation were assessed. A considerable mobilisation of US military refueling aircraft suggests preparation for potential engagements.
Japanese Bond Market Reaction
In Japan, bond prices fell as inflation concerns outweighed the demand for safe assets amid the Middle Eastern tension. The Bank of Japan is expected to retain its current policy rate, although it is considering reducing the pace of its bond purchase programme in the future.
In China, data reflected continued issues in the property sector, highlighted by a drop in home prices, though retail sales showed signs of recovery. The USD has strengthened, especially against the yen and CHF, with upcoming international meetings, including the G7 and FOMC, expected to influence market trends further.
This existing report outlines several concurrent international developments with tangible implications for short-term pricing, especially in sensitive instruments that move on momentum and geopolitical pressure. At the headline level, military action between two regional powers has begun to slide into a pattern, with retaliatory strikes that are no longer limited to threat posturing. The recent deployment of US aerial refuelling assets suggests an operational posture that markets now treat as more than sabre-rattling. These actions have direct effects on perceived global risk, and we can already see its stamp on several asset classes.
We’ve seen flows into gold, and not without rationale. The metal holds appeal in moments when currency volatility begins to reflect erratic policymaking or sudden risk-off pivots. The timing of the move upwards came whilst real yields were not flatlining, meaning the surge is not purely a function of rates coming down, but rather tied to actual demand for protection from tail events. That may persist so long as military developments do not stabilise in direction or predictability.
Oil’s earlier pricing exceeded $90 per barrel before giving some ground. That’s notable. The initial reaction was to price in supply disruption risks, but this was countered when shipping continuity and inventory levels were reassessed. What followed was a return to a narrower, more controlled trading band. For us, that hints that pricing is still sentiment-driven rather than reacting to blunt fundamentals like real-time tanker movement or OPEC’s capacity guidance. But if this normalises, intraday volatility in crude should taper, which shifts attention more toward options pricing models than outright directional bets.
Back in Asia, Japanese bond yields have adjusted upward, not because of external conflict but due to domestic worries over inflation persistence. Inflation has stopped being cyclical and instead has become more associated with cost-led pressures—commodities, wages, and supply rigidity. The central bank there might not tighten via the policy rate yet, but it is clearly uncomfortable with its existing exposure through bond holdings. A retreat from long-dated purchases introduces steepening risk, and that changes how we look at interest rate products pegged to 5y or longer tenors. Flatteners seem less appealing under such a shift.
China’s Economic Impact
Meanwhile, across the East China Sea, China’s property woes continue to weigh on confidence. Another reported decline in house prices just added to the general malaise. However, stronger-than-expected retail data might, on a standalone basis, counter anxiety, at least for those pricing consumer credit risk within the short-term duration space. Yet we find that property remains the more influential pressure point, and any bounce in consumer sentiment won’t matter if construction volumes continue to lag. In practical terms, mainland-linked equity futures may stay capped, with reduced appetite for leverage across local institutions.
Currency movements have also been revealing. The dollar, often seen as a distress barometer, has appreciated cleanly against the yen and the franc. That is telling. It implies that risk aversion is not leading to flows into Japan or Switzerland—both historically viewed as safe destinations. Instead, capital appears to prefer staying in dollar-denominated liquidity over negative-rate alternatives. This push higher in the greenback alters funding conditions worldwide. From our perspective, firms relying on USD borrowing will face wider debt spreads if this continues. We need to start factoring in that dollar strength isn’t purely a reflection of US economic expectations—it’s increasingly tied to global insecurity and repricing of risk abroad.
Looking ahead, the heavy calendar of central bank and finance ministry meetings—particularly the G7 and Federal Reserve’s FOMC—carries added weight. These events may not fundamentally shift rate paths, but they frame forward guidance and cross-border coordination. In options markets, we must consider that implied volatility around these dates remains elevated, largely due to lack of clarity on fiscal responses amid geopolitical uncertainty.
Positioning now requires us to move away from assumptions of mean reversion or historical correlation. We need to readjust our frameworks—pricing models should incorporate sharper potential upsides in commodity-linked options and sustained curves in bond vol, particularly through the mid-curve. The key now is recognising that what used to be short-lived bursts of volatility have gained duration. That alters how we hedge, how we price time value, and how we balance our books.
