Bitcoin (BTC) is emerging as a safe haven asset, with the U.S. Treasury bonds falling out of favor in the wake of the Israel-Hamas conflict, according to Mohamed El-Erian, chief economic advisor at German financial services firm Allianz.

“You have people talking about bitcoins, about equity, being the ‘safe asset’ because they’ve lost confidence in government bonds being the safe asset because of the nature of the interest rate risk,” El-Erian told CNBC on Tuesday.

A safe haven asset is expected to retain or increase in value during periods of economic and political uncertainty. For decades, investors have treated government bonds, particularly those issued by the U.S. Treasury, as safe havens.

Recently, however, the Treasury bonds have failed to live up to their reputation.

At 4.9%, the yield on the U.S. 10-year Treasury note is at least ten basis points higher than where it was a day before Hamas attacked Israel on Oct. 7. In other words, the price of the 10-year note has declined, a sign of investors seeking safety in other assets. Bitcoin has risen 23% to $34,460 since Oct. 7.

“We haven’t seen the flight to quality of flight to safety that you would expect given what’s happening in the world,” El-Erian said, noting the uptick in the 10-year yield since the outbreak of tensions in the Middle East.

The Treasury bond market has seen higher volatility this year, with yields charting sharp two-way moves in recent weeks due to uncertain government bond auctions, concerns about the economy, federal debt and the Fed’s policy path. The central bank has raised the benchmark borrowing cost by 525 basis points since March 2022 and intends to hold it higher for longer.

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