Historical wars show that bond yields depend on conflict duration

Historical comparisons suggest that war does not always cause interest rates to spike. The analysis notes that expectations about the conflict’s outcome and other economic factors also affect yields.

During Gulf War I, Iraq invaded Kuwait on August 2, 1990, and the Desert Storm offensive began on January 17, 1991. The 10-year yield rose from 8.29% to 9.05% in less than a month, but six months later it had fallen to 8.03%.

Before the invasion of Afghanistan, the 10-year yield stood at 4.52% and initially fell to 4.22%, amid expectations of a quick operation. Six months into the war, it had risen to 5.25%. The comparison suggests that a short conflict may create less lasting pressure on rates, while a prolonged war can push yields higher.