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

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.