Money, banking and financial market Suppose sustainable peace is reached in Iraq and Afghanistan, reducing military spending by the U.S. government. How would you expect this development to affect the U.S. bond market?          

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The reduction in expenditure in the wars in Iraq and Afghanistan would decrease the budgetary deficit of USA, perhaps make it a AAA rated nation again. That would decrease the bond yields. The stock markets would rally as there would be anticipated increase in the funds saved being used for...

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The reduction in expenditure in the wars in Iraq and Afghanistan would decrease the budgetary deficit of USA, perhaps make it a AAA rated nation again. That would decrease the bond yields. The stock markets would rally as there would be anticipated increase in the funds saved being used for the benefit of companies. That would divert more money from the bond market to the equity market.

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I, too, would believe that peace could benefit the United States monetarily. As for long term though, the US is simply in too deep. Citizens would not likely see immediate relief (outside of the soaring gas prices).

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I think I would echo most of what has been said in that the interest paid on bonds would likely come down as it would, in theory, create a somewhat safer outlook for long term US debt.

But lasting peace...  unlikely at best don't you think?

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As others have indicated, the expectation based on past experience would be that the bond market would decline and the stock market would increase substantially if a real, lasting, sustainable peace in the Middle East were achieved. The movement (presumably) of United States budgeted funds from military purposes to other domestic concerns would also support the likelihood that the stock market would expand in response to this scenario.

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This is a great question. There is usually inverse relationship between bonds and the markets. If your scenario takes place, the markets will probably rise and the bond market will go down. But this is not completely airtight in our economic climate. The world and the markets seem to be more volatile than ever and hence unpredictable. This is where there is a rush to gold.

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If this were to happen, the federal deficit would likely go down.  This would mean that American debt would look even less risky than it usually is.  If that happens, the interest that would have to be paid on US bonds would likely go down as there would be less risk in those bonds.

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The stock market would probably soar for all kinds of reasons, including the remote possibility that the savings might actually help to reduce the U. S. budget deficit. Another possibility would be that Iraq would become a dependable supplier of oil to the U. S. Finally there is always the chance that a working democracy in Iraq would provide a model for other states in the middle east. Genuine peace in those two countries would probably be seen by investors as a very good thing.

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Investors speculate based on all kinds of things, especially threat of war in the Middle East.  They might seek to put their money in bonds instead of stocks if there seems to be imminent danger, but peace in the Middle East might result in more money in stocks.

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