As geopolitical tensions rise, particularly due to the Iran war, U.S. Treasury yields have increased, and the yen has weakened significantly, reaching multi-decade lows against the dollar. Gold prices have also dropped sharply from earlier highs.
Analysts attribute these shifts to a departure from typical risk-off behavior, with inflation concerns and higher real yields overshadowing the usual demand for safe assets. Frederic Neumann from HSBC noted that the underlying risk appetite remains strong, with U.S. and some Asian markets reaching record highs, driven by investments in AI-related stocks like Nvidia and Samsung Electronics.
Henning Potstada from DWS emphasized that equity performance is primarily driven by earnings per share (EPS) growth, which is currently on the rise. The bond market's lack of safe-haven flows is linked to inflation expectations and concerns over U.S. debt sustainability, with the projected federal budget deficit for 2026 estimated at $1.9 trillion, or 5.8% of GDP.
Gold's recent underperformance has puzzled experts, as it has not acted as a reliable safe haven, influenced by a stronger U.S. dollar and higher real yields. The yen's decline is attributed to Japan's policy divergence and high debt-to-GDP levels, which stand at 204.4%.
Overall, traditional safe havens are becoming less predictable, suggesting that investors may need to diversify their asset allocations rather than relying solely on established refuges