Treasury bonds are losing their status as safe-haven assets, Mohamed El-Erian says

• The Treasury market seems to be losing its appeal as a safe-haven investment, Mohamed El-Erian told CNBC.
• Despite turmoil in the Middle East, yields have climbed as traders continue to dump bonds.
• Assets that aren't usually deemed as risk-free, such as bitcoin and equities, are becoming the new safe havens.

The Treasury market is losing its appeal as a safe haven, Mohamed El-Erian told CNBC on Thursday.

While spasms of geopolitical turmoil would normally be a classic reason for investors to pile into the market for US government debt, the economist pointed out that this has hardly happened in recent weeks, despite flaring tensions in the Middle East. 

Instead, yields have actually reached higher since the Israel-Hamas conflict, despite the possibility of an escalating crisis.

"We haven't seen the flight to quality and the flight to safety that you would expect, given what's happening in the world," he said. 

He added: "So yes, it should be the safe-haven, it should have already benefited. But the reality is that the 10-year yield today is a good 70 basis points higher than it was before this latest conflict erupted."

El-Erian also noted observations that traditionally riskier assets, such as equities or bitcoin, are increasingly heralded as safe-haven investments, sentiment that has grown as investors continue to dump Treasurys.

The point was illustrated in a May survey from this year, which highlighted that trust in bitcoin as a safe haven asset had surged to outpace Treasurys and the dollar. 

Traders' faith in the bond market has only plummeted since, amid the fear of higher interest rate risks, El-Erian said. With the Federal Reserve currently acting as a net seller, and with the government set to issue even more bonds, the lack of buyers will help push yields up further. 

This dynamic has already caused yields to rise, with weak demand for recent bond auctions helping to drive long-dated Treasurys into 5% territory for the first time in years. 

"No matter how you look at it, the world's most crucial benchmark market is on an unpredictable journey with an uncertain destination," El-Erian wrote in a separate piece, warning investors not to take the bond market's resiliency for granted. 

Speaking with CNBC, he acknowledged that any long-term lack of Treasury buyers could force the Fed to begin adding bond assets to its balance sheet. However, this may go against the central bank's objectives, and a sudden change policy shift could be disruptive.