UBS Warns Iran Conflict Expansion Could Worsen US Fiscal Deficit and Debt Stability

UBS has issued a warning that prolonged military action against Iran under the Trump administration is likely to widen the US fiscal deficit significantly. President Trump indicated that military operations could persist for four to five weeks, necessitating a substantial and urgent replenishment of expended weapons stockpiles. Economist Paul Donovan described this development as a new "wobble" for the government debt market, as sudden spending pressures mount. The immediate need to replace munitions is expected to drive government spending higher, adding to the existing national debt burden. Analysts suggest that increased fiscal deficits typically lead to higher bond yields and lower bond prices, directly impacting instruments like US10Y and TLT. While geopolitical tensions may drive safe-haven flows into XAU/USD, the long-term sustainability of US debt remains a growing concern for global investors.