Macroscope | When even US Treasuries are no longer safe havens, market volatility is here to stay
- Benjamin J. Cohen says the US government bond market is no longer seen as a safe haven for investors. And nor is the euro zone or the Japanese government bond market, while Chinese securities inspire little confidence either
With equities slumping, exchange-rate volatility increasing and political risks intensifying, financial markets around the world have hit a rough patch. In times like these, international investors generally grow cautious and prioritise safety over returns, so money flees to safe havens that provide secure, liquid investment-grade assets on a sufficiently large scale. But there are no obvious safe havens today. For the first time in living memory, investors lack a quiet port where they can take shelter from a storm.
To be sure, some of the dollar claims were added to portfolios because foreign banks and institutional investors were meeting funding needs with greenbacks, after interbank and other wholesale short-term markets seized up. But that was hardly the only reason why portfolio managers piled into the US. Much of the increased demand was due to sheer fear. At a time when nobody knew how bad things might get, the US was widely seen as the safest bet.
