The "rare" market reaction: bonds initially fell, followed by gold, yen, and Swiss franc "succumbing," leaving only crude oil as a "safe-haven asset."

The United States and Israel launched a new round of military operations in the Middle East, but the market’s reaction defied textbook safe-haven logic.

On Tuesday, the dollar strengthened, gold plummeted, bond yields rose across the board, and both the yen and Swiss franc declined—collectively “losing ground” as traditional safe assets. The only asset acting as a safe haven was crude oil. Brent crude oil surged over 8% intraday, becoming the day’s most prominent winner and reshaping the market’s overall rally and decline logic.

This combination is extremely rare. According to The Wall Street Journal, since 1983, there have only been 16 instances where Brent crude rose more than 7% in a day while gold fell and bond yields increased. On Tuesday morning, the S&P 500 briefly dropped over 2%—a decline never seen in those 16 cases.

Analysts note that for investors holding gold, U.S. Treasuries, and consumer staples stocks to hedge risks, the experience was far more painful than the price movements suggest. Market logic has shifted from “stocks outperform bonds, weak outperform strong” to “oil-exporting countries benefit from oil.”

Bonds Fall First, Gold, Yen, and Swiss Franc “Collapse” Later

During times of extreme market turmoil, bonds are usually the first safe haven. But on Tuesday, U.S. Treasury yields rose instead of falling, and even Swiss government bond yields, known for safety, also increased.

The reason is that the rapid surge in oil prices immediately fed into inflation expectations, dampening the market’s bets on Fed rate cuts and pushing bond yields higher. The safe-haven function of bonds was directly offset by this mechanism.

This logical chain is clear and straightforward: oil prices rise → inflation expectations heat up → rate cut expectations shrink → bond yields rise → bond markets decline. The market movements on Tuesday were a full illustration of this chain.

Gold should have benefited from inflation fears, but on Tuesday, gold prices fell about 4%, and even as stocks rebounded strongly in the afternoon, gold’s decline remained evident.

Analysts point out that gold faced a “double blow”: First, gold prices are quoted in dollars, and a strengthening dollar directly suppresses gold; Second, before the Middle East conflict erupted, gold had already gained 21%, reaching a high, making it the most convenient target for traders to reduce leverage when trimming positions.

This phenomenon reveals a market reality: when assets have risen too much and positions are overcrowded, external shocks tend to trigger early sell-offs rather than safe-haven buying.

It’s worth noting that although the dollar index briefly rose about 1% on Tuesday, seemingly consistent with the typical pattern of capital flowing into the dollar during crises, the underlying drivers of this dollar appreciation are quite different from past episodes.

In typical risk-off scenarios, the Swiss franc and Japanese yen tend to strengthen simultaneously, often outperforming the dollar. However, on Tuesday, the Swiss franc fell 0.5% against the dollar, and the yen declined 0.3%. This indicates that funds are not seeking the “safest currencies” but are instead concentrating on “oil-benefiting countries.”

The U.S. is the world’s largest oil producer and a net exporter. If Iran disrupts shipping through the Strait of Hormuz or attacks oil and gas infrastructure in the Arabian Peninsula, the U.S. would be among the biggest economic beneficiaries.

Norway is similarly affected—on Tuesday, the Norwegian krone strengthened significantly against the dollar. In contrast, most European countries and Japan are net oil importers, putting their currencies under pressure.

Oil Prices Dominate Everything, but the Outlook Remains Uncertain

Rising oil prices are bearish for stocks; falling oil prices are bullish. Until the war’s outcome becomes clearer, every fluctuation in crude oil will directly influence market direction. On Tuesday, both upward and downward movements occurred within the same trading day.

Analysts point out that all Tuesday’s market volatility was based on one premise: the war will continue, and Iran still has the capacity to cause significant disruptions to oil transportation or production.

However, this premise was later challenged—Trump stated that the U.S. might start escorting ships passing through the Strait of Hormuz. This statement added complexity to market judgments about the situation’s trajectory.

According to Wallstreetcn, the turning point in the market occurred in the afternoon when Trump posted on a real social platform:

Effective immediately, I have ordered the U.S. Development Finance Corporation (DFC) to provide political risk insurance and financial security at reasonable prices for all maritime trade passing through the Gulf region, especially energy transportation. If necessary, the U.S. Navy will begin escorting oil 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 retreating from highs and stocks rebounding sharply from intraday lows. Adam Turnquist of LPL Financial said that the latest developments help reduce concerns about major disruptions to global supply, ease inflation pressures, and calm the surge in bond yields.

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