The world economy experienced a geopolitical shock on Feb. 28 when Israel and the United States launched airstrikes on Iran. Figure 1 below shows that the 30-day moving average of the geopolitical risk index — a measure of adverse geopolitical events and risks based on text analysis of newspaper articles — rose to its highest levels since 2022, when Russia invaded Ukraine. According to the authors of the index, higher levels of the geopolitical risk index foreshadow lower investment, stock prices and employment.

Higher demand for U.S. government debt is associated with higher prices of Treasurys and lower yields. With flight-to-safety capital flows toward U.S. bonds, Treasury yields might be expected to fall. However, Figure 3 below shows that the 10-year Treasury yield rose following the start of the Iran conflict and is roughly 40 basis points above its preconflict level of 3.97 percent on Feb. 27.

Figure 4 below shows that the rise in the 10-year yield was observed across other maturities as well, leading to an upward shift in the Treasury yield curve.

Does the rise in Treasury yields indicate that the United States has lost its safe-haven status? Not necessarily. Figure 5 below shows that, since Feb. 27, yields on sovereign bonds have risen across several countries traditionally viewed as safe havens during episodes of elevated geopolitical stress. This shared increase suggests that other factors — such as an increase in global inflation risks, a reassessment of the likely path of short-run rates or elevated overall uncertainty — may be more predominant in driving up long-term global bond yields, compared to the downward pressure on yields associated with flight-to-safety flows. Amid such factors, the flight-to-safety effect may still be operating in the background, preventing U.S. Treasury yields from rising further than they already have.