For decades, certain financial assets have been considered the bedrock of safety in turbulent times. Traditionally, U.S. Treasuries and the U.S. dollar have been the global go-to havens when geopolitical tensions or economic shocks threaten stability. But in today’s evolving market landscape, even these stalwarts are showing signs of vulnerability. Investors are now being forced to reconsider: What truly qualifies as a risk-free asset anymore?

Changing Reactions to Geopolitical Events

Recent geopolitical escalations, particularly in the Middle East, have not triggered the typical flood into safe-haven assets. Normally, such developments would result in a sharp drop in Treasury yields and a strong rally in the U.S. dollar as capital seeks safety. This time, however, the response has been more nuanced—and even contradictory.

Instead of a dollar surge, we’ve seen only modest gains. Treasury yields have actually moved higher, not lower. This behavior breaks from tradition and signals a shift in how investors are interpreting safety in the face of global conflict. These movements aren’t just market quirks—they’re rooted in deeper structural changes.

The Dollar’s Waning Appeal—Temporarily?

Global investors have recently been unwinding long positions in the dollar, a process that’s been underway since early spring. With those positions trimmed, and currency hedges added to equity exposures, there’s now a reluctance to dive back into the dollar despite renewed geopolitical uncertainty.

This doesn’t mean the dollar is no longer seen as a safe asset. Rather, it suggests that market participants are more cautious about overcommitting to any single currency play, especially one that was already heavily favored. Rebuilding long positions isn’t an automatic reaction anymore; investors are choosing a more patient, measured approach.

Treasuries: Still Safe, But Not Immune

Traditionally, U.S. Treasuries have served as the ultimate “risk-free” benchmark—backed by the full faith and credit of the U.S. government and historically offering liquidity and stability. However, today’s market is looking at Treasuries through a new lens.

Fears about inflation persist, especially with oil prices hovering above key thresholds that could reignite upward price pressures. In this environment, bets that the Federal Reserve can ease policy anytime soon are becoming less compelling. Without the comfort of dovish Fed policy on the horizon, Treasuries look less like a haven and more like a volatile trade.

There’s also growing concern about global demand for U.S. debt. Questions around “sponsorship” for Treasuries—essentially, who will buy them and at what yield—have left some investors hesitant to treat them as a no-brainer safe asset.

A Market in Deleveraging Mode

Zooming out, the broader market seems to be entering a deleveraging phase. This behavior often follows periods of extended risk-taking, as investors reduce exposure and increase cash positions. When this happens, even assets like gold—typically a beneficiary of flight-to-safety trades—show only muted responses. A 1% gain in gold during a time of geopolitical tension may indicate a lack of conviction across the board.

European bonds, too, are grappling with the same issues plaguing Treasuries: inflation uncertainty and concerns about investor demand. With few clear safe havens offering both yield and stability, capital is becoming more selective—and more cautious.

So, What Is the Risk-Free Asset Now?

The concept of a “risk-free” asset is evolving. Where once there was near-universal consensus—U.S. Treasuries, the dollar—there is now a more fragmented view. Safety is no longer about tradition; it’s about perception, timing, and context.

In today’s markets, risk-free doesn’t mean immune to volatility. It means offering relative stability amid chaos. That might still include U.S. Treasuries and the dollar—but with more caveats than before. Gold, cash, and even select foreign sovereign bonds could enter the mix, depending on the nature of the crisis and the investor’s geographic and strategic positioning.

The takeaway is clear: market participants are recalibrating their definitions of safety. The “risk-free” label, once firmly attached to a narrow set of instruments, now floats more freely across a broader, more dynamic landscape. Investors must remain agile, analytical, and forward-looking if they hope to navigate this new reality effectively.