I've read that in 1991, upon Baker's statement during the news conference which preceded the first gulf war, that spoos tanked, oil shot up $3, and bonds fell a point and a half -- what would the rationale be for bonds falling on that news? If a war suddenly broke out in the mideast today, wouldn't t-notes rocket higher?
I'm not much on analysis, but I would think that historically countries have gone broke going to war. This puts the quality of that country's debt in question. War temporarily enhances an economy and then later leads to higher deficits, inefficient use of resources and loss of human capital. These can't be good things for that country's currency, debt or earnings potential. Some economist members might have a better reply.