Demand for safe-haven assets triggered by conflict with Iran has not, as in the past, funneled capital into U.S. Treasuries. Instead, the inflationary shock from war, combined with the structural expansion of the U.S. fiscal deficit, is undermining the hedging efficiency of U.S. debt as a global "safe asset." U.S. stock markets still closed slightly higher on Monday, extending the market's habit of "buying the dip" after sudden negative news. However, the bond market performed poorly, with yields on U.S. Treasuries of various maturities rising continuously since markets opened Monday, indicating that U.S. debt failed to provide its traditional cushion under stress conditions. Volatility in risk assets first manifested significantly overseas. South Korea's main stock index, last year's best-performing major global index with a cumulative gain of 92%, recorded its largest single-day drop since 2008 overnight amid fears of the economic spillover effects of war. U.S. stock index futures initially sold off sharply but had turned positive by the market open. Factors driving Treasury weakness include not only re-inflation worries from rising oil prices but also the ongoing squeeze on U.S. fiscal space. Last month, the Congressional Budget Office raised its deficit projection for the next decade by $1.4 trillion, prompting investors to reassess the boundaries of "risk-free" pricing. The safe-haven logic is being challenged, and government bonds' role as a "shock absorber" is failing. The core reason investors accept lower returns for holding U.S. Treasuries is that they typically act as a cushion during risk events. In a typical scenario, if stocks fall 10%, a classic 60/40 stock-bond portfolio can limit losses to within 5%, provided bonds rise by about 3%. This time, however, bonds have not rallied as expected. Long-term Treasury ETFs fell 1% on Monday and continued to decline on Tuesday, while stocks only later began to more fully price in the possibility of a prolonged conflict. This combination of "stocks holding steady while bonds fall first" challenges the very logic of the hedge. Rising oil prices push up inflation, making it harder for central banks to cut interest rates. Sustained increases in oil prices will push inflation higher, prompting investors to demand higher yields, which in turn lowers bond prices. Even if an energy shock could dampen growth—traditionally creating expectations for rate cuts—policymakers' reactions might be more cautious. Concerned about repeating the stagflation of the 1970s, central banks may be reluctant to cut interest rates easily in response to an energy shock. This contrasts with the typical response following non-energy shocks. Historically, bonds saw significant rallies after events like 9/11, the collapse of Lehman Brothers, and the Brexit vote. However, when Iraq invaded Kuwait in 1990, triggering an oil price spike and a recession, bond prices came under pressure initially. Soaring deficits exacerbate bond market fragility. Oil prices may not be the only variable. The U.S. fiscal situation is already stretched: last month, the Congressional Budget Office raised its deficit forecast for the next decade by $1.4 trillion. The federal deficit as a share of economic output is at a level rarely seen outside of recessions since World War II. Simultaneously, the amount of debt held by the public is approaching thresholds set during WWII. During that war, the "public" primarily meant domestic U.S. savers; today, overseas creditors from the Middle East and Asia hold a significant share of U.S. debt and may worry about the conflict's impact on their own economies. In this structure, U.S. Treasuries need to prove their attractiveness to global capital, increasing sensitivity to interest rate and exchange rate movements. Historical lessons: Yields rose during the Vietnam War; WWII-style "yield suppression" is hard to replicate. Historical experience suggests that the combination of war and fiscal expansion does not always benefit government bonds. Even during the Vietnam War, when U.S. reliance on foreign financing was lower, bond yields trended upwards as Washington pursued both the "War on Poverty" and actual warfare concurrently. The reason U.S. bond yields remained subdued during World War II was primarily due to collaboration between the Treasury and the Federal Reserve to "press yields down," achieved at the cost of diluted returns for savers. However, in today's environment of free capital movement, if markets fear a recurrence of similar "fiscal dominance," it could trigger investor unease and weigh on the U.S. dollar.