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Hedge funds and bond market liquidity dynamics at the onset of the 2026 Middle East conflict

Author

Listed:
  • Vincent Meh
  • Jabir Sandhu
  • Andreas Uthemann

Abstract

We examine whether hedge funds and other asset managers contributed to illiquidity in the Government of Canada bond market at the onset of the war in the Middle East in early 2026. We find no evidence that they did. Hedge funds remained active participants in primary auctions, while the extent to which dealers could offset client transactions in secondary markets stayed within its typical range. Although hedge funds did reduce leveraged positions, their trading remained broadly consistent with their usual relative-value strategies.

Suggested Citation

  • Vincent Meh & Jabir Sandhu & Andreas Uthemann, 2026. "Hedge funds and bond market liquidity dynamics at the onset of the 2026 Middle East conflict," Staff Analytical Papers 2026-42, Bank of Canada.
    • Handle: RePEc:bca:bocsap:26-42
    DOI: 10.34989/sap-2026-42
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    Keywords

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    JEL classification:

    • G - Financial Economics
    • G0 - Financial Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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