LONDON/NEW YORK/SINGAPORE, March 30 (Reuters) – The Iran war has sent jitters across financial markets, leaving some investors and market makers reluctant to take risks, making trading more difficult – which regulators are watching closely.
There is no major global market, from the US Treasury, to gold, to the reserves, investors and traders said. In Europe, hedge funds, which currently dominate bond trading, have added to that momentum as they quickly cut stakes this month.
Register Here.
Investors say they have sometimes struggled to find prices, or make trades in the past four weeks, as market makers fear sticking to large positions that could quickly turn unprofitable.
“When we try to sell, it takes a long time to sell. (Market makers) want us to be more patient, to cut businesses into smaller sizes,” Rajeev De Mello, the chief investment officer of GAMA Asset Management, adding that the gaps had widened between the price at which the market makers would buy the property and the price at which they would sell it. “What has had the effect is that everyone has reduced the size of their positions.”
Fractures have emerged even in deep and liquid sovereign debt markets, the underpinnings of global financial markets that have been hit hard as inflation risks hurt investors.
The difference between bid and ask prices on two-year US Treasuries, a key measure of market depth and cost of sales for the most traded securities, has now increased by about 27% in March, compared to February levels, according to Morgan Stanley, suggesting that traders are charging more to take on risk.
WARNING IN THE BOX
To be honest, recent signs of market pressure are not uncommon during times of market turmoil, such as during US President Donald Trump’s “Independence Day” tariffs last April and the 2020 COVID pandemic.
But this cycle of uncertainty came at a time when the markets were in broad positions, as investors rode a rally across asset classes, suggesting that a deep correction could be in place if the war continues and the water evaporates.
In Europe, the pain has been especially present in the futures market for short-term rates, where traders were quick to buy high central bank rates.
Liquidity was “significantly reduced” at one point, running at 10% of normal levels, Morgan Stanley’s head of EMEA ratings Daniel Aksan said.
He said: “(Illiquidity, price moves) reminds me of the days of COVID.”
PROTECT THE BIRDS
Business has so far remained orderly, but buyers are still in short supply as investors rush to take risks and cash in, leaving sellers hesitant.
“Firms have lost a lot of money – whether it’s the selling or the buying side – the money is being destroyed because you don’t have players,” said Tom di Galoma, managing director of global equity trading at Mischler Financial, referring to the US Treasury market.
Although trading volumes in Treasuries are increasing, analysts say some of this activity is done out of necessity, not discretion.
“With a broad supply of applications, it costs more to do business and it may not be attractive for people to enter the business, but the fact that you are still seeing very high volumes suggests that some of these activities were unwinds, or stopped,” said Morgan Stanley US rates strategist Eli Carter. HEDGE CHELETS IN EUROPE
Hedge funds now make up more than 50% of trading prices in the British and eurozone sovereign markets, according to Tradeweb’s latest data from 2025.
Although their presence in the bond markets provided money in good times, many had accumulated in the same business, some of which quickly proved to be a loss.
Hedge funds have taken heavy losses on bets that the BoE will cut rates, three hedge fund investment sources said. They also took bets on the best practices of European products and in business that assumed that the gap between the products of Italy and Germany would remain thin, Bruno Benchimol, head of business of the European government of Credit Agricole.
As they all lowered the same levels at the same time, that forced bond sellers to widen the bid spread, Benchimol added.
When a hedge provides all the money to remove risk at once it “exacerbates volatility,” said Morgan Stanley’s Aksan. Sometimes, they took positions that helped reduce uncertainty, he said. STAYING IN THE MARKET.
But market makers are still under pressure to win trades even as clients reduce the frequency and size of trades.
Sagar Sambrani, senior FX options trader at Nomura, said prices of big-ticket items have increased in line with normal market conditions to account for market risk. But, “counter-intuitively, small-ticket prices are stronger than normal as marketers try hard to capture the dwindling flow of customers,” Sambrani said.
But sometimes this is not possible.
In the gold market, which is sensitive to interest rates, Mukesh Dave, chief investment officer at Aravali Asset Management, a global arbitrage fund, said there were days when market makers were completely absent, showing a reluctance to act.
The price of the usually safe-haven gold fell this month after a record rally in 2025.
“They don’t want to make money at the time, they don’t want to lose money by being in the market. If they’re given a choice, they don’t want to be in the market,” Dave said.
Reporting by Gertrude Chavez-Dreyfuss in New York, Rae Wee in Singapore, Yoruk Bahceli and Alun John in London; Additional reporting by Dhara Ranasinghe and Nell Mackenzie; edited by Amanda Cooper and Deepa Babington
Our standards: The Thomson Reuters Trust Principles.
#uncertainty #Iran #war #disrupting #business #worlds #largest #markets