Geopolitical tensions in the Middle East have once again pushed a problem back into the spotlight – one investors are facing more and more often: how to protect a portfolio from shocks when the classic “stocks + U.S. Treasuries” mix no longer guarantees stability.

After U.S. and Israeli strikes on Iran over the weekend, markets reacted with a sharp spike in anxiety. Implied volatility in U.S. Treasury prices on Monday jumped the most since April, amid a slide in bonds across the entire yield curve. Then on Tuesday, expected volatility in the U.S. stock market recorded its biggest one-day increase since October, when global equity indexes fell.

Why Treasuries as a “safe haven” are failing

For many years, the default investor playbook during panic was to flee into “defensive” assets: gold and U.S. Treasuries. Treasuries were seen as the most reliable and liquid instrument in the world, and bonds typically rose when stocks fell. That is exactly what made the classic 60/40 asset-allocation model – 60% equities and 40% bonds – so popular.

However, after the COVID-19 pandemic, things began to change. The growth of the U.S. budget deficit and government debt, along with elevated inflation, gradually eroded Treasuries’ status as a “natural” hedge against equity-market risk. As a result, the built-in stabilizers of the 60/40 portfolio have weakened.

This hurts not only aggressive players. Investors of all types are now exposed to higher volatility and the risk of deeper drawdowns – even conservative institutions such as pension funds and insurance companies. And for regulators, it translates into broader risks to financial stability.

“If diversification fails, volatility can cascade into broader financial instability. Investors and policymakers need to rethink risk management for a new era in which traditional hedges don’t work”,

– IMF note

Alternative hedges: private assets, commodities, and unpleasant surprises

In the IMF note mentioned above, investors are encouraged to look for other approaches to hedging and diversification. In practice, this immediately raises the key question: what, exactly, can serve as a replacement if the “classic” approach no longer delivers the expected effect?

One option is private assets, which sometimes behave more calmly than public markets and can therefore act as a buffer during panic. But recent developments in private credit are a reminder that the “closed” world of private markets lacks transparency, bringing its own specific risks – from valuation to liquidity and the quality of disclosures.

Another obvious line of defense is commodities and “hard assets.” Yet this week, supporters of the idea that commodities (and especially precious metals) provide the best insurance against political risk may have been disappointed. Gold – the most famous safe haven and a traditional inflation hedge – added only 1% on Monday and then fell 2% on Tuesday.

Platinum and silver have dropped 10% since trading opened on Monday. That kind of move suggests that precious-metal prices right now are being driven not only by fundamentals but also by speculative, short-term flows.

Many other commodities also came under selling pressure – with a notable exception: oil and gas. Corn, wheat, and especially copper are falling. Yes, this may be a short-term reaction, but if there is no reversal, investors will naturally ask: where, then, to find hedging and diversification tools that actually work during geopolitical shocks.

Is there a chance the “negative correlation” between stocks and bonds returns

At the same time, there’s a nuance: even before the strikes on Iran, U.S. Treasuries looked as though they were regaining their ability to function as a diversifier. According to Truist Advisory Services, in the first two months of the year the daily correlation between stocks and bonds turned negative again and was approaching average levels typical of the pre-pandemic decade.

But when market prices and sentiment are driven primarily by political decisions and escalations rather than economic data or predictable policy, standard diversification models often cease to be a reliable “map of the terrain.” Investors understand economics and market mechanics well, but they are usually not very successful at forecasting how long a war will last and how exactly it will end.

“Regardless of whether this conflict is long or short, at the very least let it be a lesson to increase diversification across a wider range of outcomes”,

– Bob Elliott

The main takeaway for investors

The events of early March 2026 highlight an uncomfortable reality: in a world where geopolitical risks can instantly override “normal” market patterns, protecting a portfolio becomes harder. The classic 60/40 approach may work in some market regimes, but in others it can produce synchronized drawdowns. And alternatives such as private assets or commodities are not a universal shield either.

That’s why the key idea is not to search for one “magic” insurance policy, but to expand the set of scenarios the portfolio is prepared for: different sources of risk, different types of liquidity, different behavioral patterns of assets in a crisis. That is becoming the new practical answer to the question of how to hedge risks when traditional hedges behave unpredictably.