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Where Have All the Safe Havens Gone?

Even at the height of the 2008 global financial crisis, which originated in the United States, global investors viewed US Treasuries as the safest asset available. But with US President Donald Trump undermining faith in the dollar, portfolio managers find themselves in rough seas with no port of call that can offer shelter from the storm.

SANTA BARBARA – With equities slumping, exchange-rate volatility increasing, and political risks intensifying, financial markets around the world have hit a rough patch. During times like these, international investors generally grow cautious and prioritize safety over returns, so money flees to “safe havens” that can 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 find shelter from the storm.

Historically, the safe haven par excellence was the United States, in the form of Treasury bonds backed by the “full faith and credit” of the US government. As one investment strategist put it back in 2012, “When people are worried, all road lead to Treasuries.”

The bursting of the US real-estate bubble in 2007 offers a case in point. No one doubted that the US was the epicenter of the global financial crisis. But rather than flee the US, capital actually flooded into it. In the last three months of 2008, net purchases of US assets reached a half-trillion dollars – three times more than that of the preceding nine months combined.

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