Bond investors are demanding the most compensation since October 2022 to fund Middle Eastern governments as fighting flares again between the US and Iran. The spread on Middle East sovereign dollar bonds over US Treasuries widened to the highest level in more than a year, reflecting heightened geopolitical risk premiums. Traders point to the breakdown of ceasefire talks and renewed military strikes as key drivers. Yield premiums on Gulf Cooperation Council issuers have jumped sharply, with Saudi Arabia, Qatar, and UAE paper all seeing spreads blow out.

The move mirrors the risk-off sentiment that gripped markets during the height of 2022 tensions. Analysts warn further escalation could push spreads wider, potentially closing primary market windows for regional borrowers. Central banks in the region face pressure to intervene or signal support.

The Bloomberg EM USD Aggregate Middle East Index shows the sharpest weekly deterioration since the conflict began.