War Bonds Making Merry

In the glass towers of New York, London and Frankfurt, the façade and interior design are squeaky clean. There are no shell craters on Bloomberg terminals, no cries of the displaced in the earnings calls, and no wailing of ambulances tending to the wounded or picking up the dead. What is there, instead, are high bond yields, risk-adjusted returns and liquidity profiles. In this rarefied air, war is not destruction. It is merely a diversification, a new investment scheme. And tellingly, the returns are high and assured, albeit bloody.

Startlingly, merchant banks and institutional investors across the Western world are now treating conflict-driven debt with the same appetite as that reserved for infrastructure projects or energy pipelines. From Kyiv to Tel Aviv, sovereign bonds issued for wars have wormed their way into pension funds, insurance portfolios and endowment schemes. They promise something irresistible in today’s low-yield world—above-average returns and underwriting by governments.

In the confluence of capital markets and conflict zones, the concept of ‘blood money’ sheds its moral and emotional sting, becoming just a line item in a balanced portfolio. What was once an ethical motif is now being marketed as a high-performing emerging market asset, complete with prospectus, coupon schedule and ratings agency endorsement.

Refining the War Model

Among ‘modern’ states, it is Israel which best showcases the conversion of military aggression into financial opportunity. The last two years have seen it maintain simultaneous military operations in Gaza, across West Bank cities like Jenin, Tulkarm, Nablus, Hebron and Jericho, along the Lebanese frontier with Hezbollah, and in standoffs with Syria and Yemen. It has also escalated its conflict with Iran, framed as a nuclear threat despite the absence of any evidence. That makes us remember Iraq, which was nearly obliterated for hoarding WMDs.

Israel’s multi-front mobilisation ‘excursion’ comes at a huge cost. Military spending jumped by 65 per cent in 2024 to US $46.5 billion, 8.8 per cent of GDP and the second-highest share in the world. Yet, instead of collapsing under its financial burden, Israel has weaponised it, using what some call a “transnational financial framework”.

The mechanics are so simple that they betray genius. Conflict generates public debt. That debt is issued as bonds. Those bonds are marketed as secure and high-yield investments. Since October 2023, Israel has raised $20 billion through ‘War Bonds’. Global investment banks act as brokers, connecting the state’s liquidity needs to institutional investors searching for yield in a slow market. The mechanics have been shared in greater detail by Italian analyst Andrea Umbrello in Truthout.

For fund managers in Chicago or Zurich, these bonds are a happy proposition. They have a stable credit profile with US political backing, a defence economy too entrenched to be dismantled overnight, and a military establishment that guarantees survival. The violence is only abstract, reduced to being just another data point in the ‘Risk Assessment’ column.

Appetite for War-Debt

The lust for war-linked securities is not limited to Israel. Ukraine’s defence financing, underwritten by Western governments, has drawn interest from private capital seeking exposure to post-war reconstruction plans. Merchant bankers pitch such debt as ‘geopolitically secured’; ironically, the West’s own investment makes the likelihood of default unlikely.

The US remains the bulwark. Its military aid, diplomatic cover and economic leverage guarantee that all its ‘ally’ states involved in high-profile conflicts remain solvent. This assurance unwittingly creates a moral hazard—the market is aware that the US will not allow certain governments to fail; thus, war debt becomes a risk-free instrument. Do not miss the irony here—the instability that the debt arises from also assures its very stability.

US President Donald Trump’s recent rhetoric, singling out India and other nations for ‘funding’ the Ukraine war by buying discounted Russian oil, highlights the global nature of this financing web. By US logic, energy trade flows indirectly support Kyiv by freeing Western budgets for military aid, in effect making reluctant partners partake in the funding chain. Even nations not invested in war bonds are forced to feed the machinery through trade, capital flows or market stabilisation. The global financial system is so interconnected that participation is often structural, not voluntary.

The Wars Must Go On

The genius, as also the danger, of modern war finance lies in its ability to foster moral distance. A varsity endowment in Boston, a retirement fund in Paris or a sovereign wealth fund in Oslo may all hold securities whose coupon payments are funded by ongoing military campaigns. Yet, the investors rarely ever see the returns as war profits—because the debt is stripped of context, reduced to numbers in a portfolio. Also, ratings agencies do not calculate civilian casualties, only repayment risks. As long as the issuer remains solvent and has safe financial backing, the bonds are deemed ‘safe’. This divorcing of cause from cashflow is what makes ‘blood money’ insidious.

This can lead to a moral dilemma. If war debt yields are better than peace-time debt, investors develop a bias towards any resolution. Peace becomes a liquidity shock. Winding down of military operations means reduced defence spending and fewer bond issues. Investors accustomed to the yields of war-linked securities find the ensuing adjustment unpalatable. This is not to suggest that financiers consciously wish for conflict. But the nature of war finance creates stakeholders who benefit from its continuance, people who may lobby to ensure that wars do not end abruptly.

The ‘Israel method’—converting military aggression into a bond market asset—offers a template for states seeking to fund protracted conflicts without crushing their own economies. That is a dangerous precedent, one that will be difficult to challenge if it becomes the norm. As long as there is a market for such debt and powerful backers guarantee repayment, the incentive to demilitarise will always be weaker than the inducement to issue another war bond.

Logic of Blood Money

If we forget moral obligations, ‘blood money’ is turning into capital deployed for yield. That makes it worrisome, because when human toll is monetised and securitised, it gets invisible to the very people who sustain it. Thus, an investment banker in London or the refugee in Rafah are bound in the same transaction, though they may ever see each other. The market, meanwhile, indifferent to the ethical challenges, keeps moving ahead. Bonds are issued regularly, yields hiked or clipped, portfolios rebalanced. The suffering never makes it to even the footnotes.

Given this backdrop, Trump’s jab at India and other nations is a reminder that the global economy itself is complicit in prolonging conflicts. Be it through direct investment, trade flows or financial guarantees, war has become a business with eager shareholders. Today’s global markets are treating war debt as just another high-yield asset class, even moving such deals from the shadows into the front office. And if and when these deals do settle down firmly in the front office, they will stop leading to ‘blood money’. They will only create just money.

The writer is a veteran journalist and communications specialist. He can be reached on [email protected]
Views expressed are personal