"Rare" market reaction: Bonds fell first, gold, Japanese yen, and Swiss franc "then fell", and only crude oil remained as a "safe haven asset"

# "Rare" Market Reaction: Bonds Fall First, Then Gold, Yen, and Franc "Fall"; Only Crude Oil Remains as "Safe Haven"

Dong Jing

Source: Wall Street CN

On Tuesday, the market witnessed a rare reaction: traditional safe-haven assets collectively "fell"—U.S. Treasury yields rose, gold plummeted by about 4%, and both the Japanese yen and Swiss franc declined. Only crude oil, which surged more than 8%, became the sole "safe haven." The logical chain is: rising oil prices → elevated inflation expectations → reduced rate-cut expectations → bond market decline. The U.S. dollar strengthened due to the logic of oil-producing countries, not safe-haven demand.

The U.S. and Israel launched a new round of military operations in the Middle East, and the market's reaction subverted the textbook safe-haven logic.

On Tuesday, the U.S. dollar strengthened, gold plummeted, Treasury yields rose across the board, and both the yen and franc fell—traditional safe-haven assets collectively "fell." The only asset to play the role of a safe haven was crude oil. Brent crude soared more than 8% intraday, becoming the most eye-catching winner of the day and reshaping the rise and fall logic of almost all assets that day.

This combination is extremely rare. According to statistics from The Wall Street Journal, since 1983, there have been only 16 instances where Brent crude rose more than 7% in a single day, while gold fell and bond yields rose. And on Tuesday morning, the S&P 500 once fell more than 2%—a decline that has never occurred in the 16 instances mentioned above.

Analysts point out that for investors holding gold, U.S. Treasuries, and consumer staple stocks to hedge risks, the experience of this day was far more uncomfortable than the price figures suggest. The market logic has shifted from "stocks to bonds, weak to strong" to "oil-importing countries to oil-winning countries."

## Bonds Fall First, Then Gold, Yen, and Franc "Fall"

During periods of severe global market turmoil, government bonds are usually the first safe haven for capital. But on Tuesday, U.S. Treasury yields rose instead of falling, and even Swiss Treasury yields, known for their safety, also rose in tandem.

The reason is that the sharp rise in oil prices was almost immediately transmitted to inflation expectations, cooling market bets on Fed rate cuts and thus pushing up bond yields. The safe-haven function of the bond market was directly offset by this mechanism.

This logical chain is clear and direct: rising oil prices → elevated inflation expectations → reduced rate-cut expectations → rising bond yields → bond market decline. The market movement on Tuesday was a complete demonstration of this chain.

Gold should have benefited from inflation concerns, but gold prices fell by about 4% on Tuesday, and even after a strong stock market rebound in the afternoon, the decline in gold prices remained significant.

Analysts point out that gold suffered a "double blow": first, gold is priced in U.S. dollars, and the stronger dollar directly suppressed gold prices; second, before the outbreak of the Middle East conflict, gold had already risen by 21% cumulatively, at a high level, making it the easiest target for traders to reduce positions when they needed to lower leverage.

This phenomenon reveals a market reality: when an asset has risen too much and positions are too crowded, in the event of an external shock, it will instead become the first object to be sold off, rather than a safe haven.

It is worth noting that although the U.S. dollar index once rose by about 1% on Tuesday, seemingly in line with the usual pattern of capital flowing into the U.S. dollar during crises. But upon closer inspection, the driving logic behind this round of dollar appreciation is completely different from before.

Typically, in a market dominated by risk aversion, the franc and yen will strengthen in tandem, and even outperform the U.S. dollar. However, on Tuesday, the franc fell 0.5% against the U.S. dollar, and the yen fell 0.3%. This means that capital is not seeking the "safest currency," but is concentrating in "oil-benefiting countries."

The U.S. is the world's largest oil producer and a net oil exporter. Once Iran interferes with tanker traffic through the Strait of Hormuz or attacks oil and gas infrastructure on the Arabian Peninsula, the U.S. will be one of the biggest economic beneficiaries.

The same is true for Norway—the Norwegian krone strengthened significantly against the U.S. dollar that day. In contrast, most European countries and Japan are net oil importers, and their currencies are under pressure.

## Oil Prices Dominate Everything, But Prospects Remain Uncertain

Rising oil prices are negative for the stock market; falling oil prices are positive for the stock market. Until the outcome of the war is clear, every fluctuation in crude oil will directly determine the direction of the market. And on this Tuesday, both rise and fall played out simultaneously in the same trading day.

Analysts point out that all the fluctuations in the market on Tuesday were based on one premise: the war will continue, and Iran still has the ability to cause major disruptions to oil transportation or production.

However, this premise was subsequently challenged—Trump said the U.S. may start providing escorts for tankers passing through the Strait of Hormuz. This statement complicated the market's judgment on the direction of the situation.

According to an article on Wall Street CN, the turning point in the market on Tuesday occurred in the afternoon, when Trump posted on Truth Social:

Effective immediately, I have ordered the U.S. International Development Finance Corporation (DFC) to provide political risk insurance and financial security guarantees at reasonable prices for all maritime trade passing through the Gulf region, especially energy transportation. If necessary, the U.S. Navy will begin escorting tankers through the Strait of Hormuz as soon as possible. In any case, the U.S. will ensure the free flow of energy to the world.

This statement quickly reversed market sentiment, with oil prices falling from highs and the stock market rebounding significantly from intraday lows. Adam Turnquist of LPL Financial said the latest developments help reduce concerns about a major impact on global supply, ease inflation tensions, and calm the surge in Treasury yields.

## Risk Warning and Disclaimer

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