A lackluster run for haven assets during one of the most acute market selloffs in years has left investors seeking new forms of protection.
U.S. Treasuries plunged Wednesday as Donald Trump’s reciprocal tariffs took effect, sending the benchmark 10-year yield up by more than 10 basis points to its highest level since February. Gold rose but remains down for the week, during which global equities touched a one-year low. The dollar also has weakened.
Just as Trump’s latest tariff war pushes global trade into uncharted territory, financial markets also are scrambling for answers to questions about the role of assets that typically shield investors during crises. While some observers point to the likes of German bunds and Japan’s currency as potential new shelters, the candidates also face risks from liquidity to their own economic and monetary policy outlooks.
“You just don’t have many places to go if you are looking to protect your capital and attain some level of return,” said Pilar Gomez-Bravo, co-chief investment officer of global fixed income at MFS Investment Management.
The selloff in Treasuries has been the most glaring example of the loss of confidence in the once-coveted haven assets this time around. The sudden pressure on US sovereign debt came with growing fears that higher yields may spur buyers with borrowed money to sell, leading to a vicious cycle.
The combination of slowing U.S. growth and rising risk premiums that investors demand to own Treasuries would further reduce their appeal, said Chris Weston, head of research for Pepperstone Group Ltd.
“Bunds might be a better place to be right now than U.S. Treasuries, especially now that you might get more momentum-based funds that start looking at selling duration,” Weston said. “I would be keen to watch what happens in the Treasury market because things are moving quickly.”
The yen has also gained against the dollar this week, although it’s still in a nascent recovery from a multi-year slump caused by a wide U.S.-Japan interest rate gap and the Asian country’s own economic woes.
Meanwhile, a rally in the Swiss franc has sparked fears of currency intervention and negative interest rates that may hurt demand — another example of the flaws that any haven asset may carry.
That applies to the Treasuries too, as the bonds can easily be used as a “cash machine” by investors seeking quick ways to finance margin payments. Gold had become a crowded trade after hitting successive record highs this year. The dollar has already demonstrated risks of Trump’s tariff war turning the US into an increasingly isolated economy.
“Until now, the dollar was always a safe haven,” said Gomez-Bravo. “Now, you’re not seeing the dollar behave like it normally would. You would have seen a much higher appreciation in this risk-off scenario.”
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