As the old saying goes: What do you do when there are reports of nuclear war breaking out? 

You BUY risk assets, because if the reports are false, you’ll make a lot of money. If the reports are true, then who cares.. 

Israel has begun its retaliation against Iran after Saturdays missile and drone attack on Israel.So far attacks seem to have been directed at Iranian proxy groups in Syria and Iraq as well as unknown targets in the Iranian region of Isfahan. The latter could well be drone or missile factories or nuclear production facilities.

Once again – (so far!) this falls well within what we and others have expected and will likely not elicit a larger response by Iran, but we have to understand the full scope of Israeli attacks to provide a full prognosis.

For now, it seems like Iran is doing whatever it can to downplay the significance of the attack, which doesn’t sound like a major retaliatory operation is in the making. There is so much more Israel could have done, if they truly wanted to escalate this… But it is of course impossible to rule anything out at this point.

It seems like risk assets will become (very) cheap versus macro fundamentals, when the dust settles on this and we are sitting on our hands until we find the timing right to 1) add to risk assets and 2) add to positions betting on higher rates after this. Why buy Treasuries on this? This is inflationary if anything.. Just remember the price-action during the early innings of the Ukraine-war, and what happened just a few weeks after the initial drop in bond yields.

Chart 1: Why buy fixed income on war?