Violence between Israel and Iran continues, as both nations carry out attacks, raising the risk of a larger regional conflict. Iran’s recent missile strikes are the most significant yet, hitting major Israeli areas. Meanwhile, Israeli forces have targeted missile sites and Revolutionary Guard facilities in Iran. ### Japanese Bond Market Reaction In the financial markets, gold prices have risen as investors seek safety amid geopolitical tensions. Oil prices initially went up but later fell as the potential for escalation was evaluated. A large deployment of U.S. military refueling aircraft indicates readiness for possible confrontations. In Japan, bond prices dropped due to inflation worries that overshadowed the search for safe assets during the ongoing Middle Eastern crisis. The Bank of Japan is likely to keep its interest rates steady but may slow down its bond-buying program in the future. In China, issues in the property sector persist, shown by falling home prices, although retail sales are improving. The U.S. dollar has strengthened, particularly against the yen and the Swiss franc, with upcoming international meetings like the G7 and FOMC likely to impact market trends further. This report highlights ongoing international events that directly affect short-term pricing, especially in sensitive markets influenced by momentum and geopolitical factors. Military actions between Israel and Iran have started to follow a pattern of retaliatory strikes, moving beyond mere threats. The recent deployment of U.S. aerial refueling assets suggests markets now view this as more than just saber-rattling, affecting global risk perceptions and various asset classes. Demand for gold has increased for good reasons. The metal is attractive during times of currency volatility, reflecting erratic policymaking or sudden shifts towards risk aversion. The recent rise in gold prices coincided with a period of stable real yields, indicating that the increase is driven by real demand for protection rather than just falling rates. This trend may continue as military developments remain unpredictable. Oil prices reached over $90 per barrel before decreasing. This initial spike was due to concerns about supply disruptions, but was later moderated as shipping and inventory assessments improved. The market returned to a tighter trading range, suggesting that sentiment primarily drives prices rather than fundamental factors like real-time tanker movements or OPEC capacity. If this trend stabilizes, we may see reduced intraday volatility in crude oil, shifting the focus to options pricing models instead of outright directional trades. In Japan, bond yields have risen not because of external conflicts, but due to rising inflation concerns. Inflation is no longer just cyclical; it is now driven by cost pressures such as commodities, wages, and supply issues. While the central bank may not raise policy rates yet, it seems uneasy about its bond holdings. Reducing long-term purchases could introduce risk, changing how we view interest rate products linked to five years or longer. This makes flatteners less attractive. ### China’s Economic Impact Over in China, ongoing property problems still affect confidence. Another decline in house prices adds to the overall negative sentiment. However, stronger-than-expected retail data might help ease concerns, at least for those assessing consumer credit risk in the short term. But, the property sector remains the main pressure point, and any improvement in consumer confidence won’t matter if construction volumes remain low. As a result, equity futures linked to mainland China may remain limited, with local institutions less willing to take on leverage. Recent currency movements have been telling. The U.S. dollar, often seen as a safe haven during distress, has appreciated against the yen and the Swiss franc. This shift indicates a preference for dollar-denominated liquidity over negative-interest alternatives in Japan and Switzerland. If this trend continues, companies relying on USD borrowing may face wider debt spreads. It’s important to note that the dollar’s strength doesn’t solely reflect U.S. economic conditions; it also reflects global insecurity and shifts in risk perception. Looking ahead, the upcoming meetings of central banks and finance ministries, especially the G7 and Federal Reserve’s FOMC, hold significant importance. While these meetings may not drastically change rate paths, they will frame future guidance and international coordination. In options markets, we should expect higher implied volatility leading up to these events, largely due to uncertainties regarding fiscal responses amid geopolitical risks. Positioning now requires us to rethink previous assumptions about market behavior. We need to adjust our pricing models to account for greater potential upsides in commodity-linked options and sustained volatility in bonds, especially in the mid-curve. It’s crucial to recognize that what used to be temporary spikes in volatility are now lasting longer. This change affects how we hedge, price time value, and manage our portfolios. **[Create your live VT Markets account](https://www.vtmarkets.com/trade-now/) and [start trading](https://myaccount.vtmarkets.com/login) now.**

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