Markets face a period of moderating global economic growth and gradually receding inflation, which, absent a broader regional conflict in the Middle East, is likely to be the main driver for markets. (UBS)

Recently, risk-off moves have abated, however. What happens next will depend on whether the war is contained or widens. Barring further escalation, we expect the market focus to shift back to economic fundamentals.


The Hamas attack on Israel has boosted several safe haven assets, with the exception of Treasuries.


  • The 10-year Treasury has not been performing its usual safe-haven role. While the yield has fallen from a recent 16-year peak of 5%, the decline to around 4.6% has been due largely to more balanced comments from the Fed and weaker US data.
  • However, gold is up almost 9% since the military conflict began while Brent has given up initial gains.

The persistence of these moves depends on investor fears of escalation and on oil supply.


  • In the event of a more protracted but contained conflict between Israel and Hamas, we would also expect the impact on global markets to ebb.
  • In a scenario where the conflict draws wider regional involvement, prices of safe-haven assets and oil may rise on anticipated or actual supply disruptions.
  • Investors will be watching for signs that Iranian involvement leads to curbs on its oil exports.

So, against a backdrop of heightened risk, we favor high-quality bonds.


  • Near-term geopolitical uncertainty is likely to increase demand for quality bonds, along with the outlook for moderating US growth and inflation.
  • We forecast the 10-year US Treasury yield to stand at 4% by end-December 2023 and 3.5% by end-June 2024.

Did you know?


  • The World Bank said that the price of Brent could rise to more than USD 150 a barrel (versus around USD 86 at present) if the conflict in the Middle East escalates, echoing the economic shock of the 1970s when major producers reduced output. The warning came in the organization's quarterly Commodity Markets Outlook. The World Bank observed that food and energy markets were still being impacted by the Russian war against Ukraine, and so would be especially vulnerable to a spreading conflict that drew in Middle East oil producers.

Investment view


Markets face a period of moderating global economic growth and gradually receding inflation, which, absent a broader regional conflict in the Middle East, is likely to be the main driver for markets. This reinforces our view that investors should strengthen the core of portfolios, with a diversified multi-asset approach. On a tactical level, we recommend investors consider buying high-quality bonds in the 5–10-year maturity range.


Main contributors - Christopher Swann, Matthew Carter, Vincent Heaney


Read the original report - What does the Israel-Hamas war mean for markets?, 6 November 2023.