The International Monetary Fund published a blog, based on Chapter 1 of the April 2026 Global Financial Stability Report, assessing how the war in the Middle East is testing global markets. It finds that while asset prices have fallen and volatility has risen, repricing has been broadly orderly and financial conditions, though tighter, remain well short of past crisis levels, with the risk that markets have not fully priced more adverse scenarios. The IMF highlights inflation expectations as the main transmission channel, driven by higher energy prices, pushing up yields and breakeven inflation and flattening yield curves as short-term rates rise more than long-term rates. It flags renewed sovereign debt sensitivity given high debt levels, limited fiscal space, and an investor base shifting from central banks toward more price-sensitive nonbank investors, with emerging markets particularly exposed through debt portfolio flows, carry trades, and external financing needs. The note argues the larger threat is amplification, pointing to leverage in parts of the nonbank sector, equity market concentration, tight credit spreads, and vulnerabilities in private credit related to opacity, valuation practices, maturity and liquidity transformation, and rising defaults, while noting that financial stability tools and liquidity backstops are less constrained than fiscal policy and can be deployed if needed.

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