Even safe-haven assets may not be quite so safe anymore

Investors often turn to the Japanese yen and Swiss franc, which have both rallied this month.

“The yen is seen as a safe haven asset because Japan is one of the world’s largest creditors,” Jason DeLorenzo, owner and principal of investment advisor Ad Deum Funds, told BI. “When there’s global turmoil, the Japanese will repatriate to the yen, and it appreciates.”

Treasurys are bonds issued by the US Government. They’re regarded as one of the safest investments available “because they reliably pay an interest rate that is seen as risk-free,” DeLorenzo said.

David Weild, the former vice-chairman of Nasdaq and chairman of Dignity Gold, told BI that economic turmoil reduces the value of most asset classes except bonds issued by rock-solid nations such as the US.

“If you looked at what happened in the wake of 2008, the only thing that rallied in that case was the Treasurys,” he said.

Some even had a negative yield, or interest rate. “That was a sign that everybody was thinking that the banking system was insolvent and that they had to keep their money someplace where they could get it back — and that was buying T-bills,” Weild said.

Davide Accomazzo, instructor of finance at the Graziadio Business School of Pepperdine University, said the “go-to safe investments” in volatile times have traditionally been Treasurys, but that may not be the case for much longer.

“The proposed set of new policies might hurt the economy and generate inflation as well, a most unwelcome result,” he said. “Bonds fare well in economic slowdowns, but rather badly during inflationary times.”

On Wednesday Treasury markets were experiencing what Deutsche Bank analysts called an “incredibly aggressive selloff” that added “to the evidence that they’re losing their traditional haven status.”

The yield on 30-year bonds jumped again to 4.96% following the fastest increase since March 2020 over the past two trading sessions. The return on 10-year Treasurys hit

“There’s no sign yet that the market is managing to successfully find a bottom, and it feels like no asset class has been spared as investors continue to price in a growing probability of a US recession,” the Deutsche analysts wrote.

Defensive stocks are companies that generally have stable performance regardless of the economic situation, because they sell goods or provide services that consumers will keep needing to buy.

Costco is one example. The retailer’s stock has fallen in the past five days at Tuesday’s close, but by just 4% and is almost flat for the year. The stock is faring better than Walmart, which is down 7.3% over the past five days and almost 10% this year, while Amazon‘s declines total 9% and 22% respectively.

Last but not least, there’s cash — and even that has some downsides.

“Cash is seen as a safe haven because if you have money that isn’t invested, it can’t lose,” DeLorenzo said. “However, if assets increase in value, your cash doesn’t, and that implicitly subjects your cash to losing value. Also, inflation hurts cash assets.”

For Accomazzo, cash offers a respectable yield and no volatility, but he also likes bonds.

“Despite their negative correlation to inflation, bonds might just be the better option on an intermediate horizon given current good yields and a shot at principal appreciation if rates ultimately come down,” he said.

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