By Sejuty Chowdhury, investment strategist, M&G’s life investment office
Geopolitics, debt, and inflation are reshaping the way many of us think about safety in our portfolios. What used to feel familiar, the predictable swing between “risk on” and “risk off” environments, now feels far less reliable. We have entered an economic landscape defined by structural volatility, digital transformation, and shifting macro drivers. In turn, investors are asking themselves what a true safe haven looks like today?
For decades, government bonds sat comfortably at the top of this list. They offered stability, liquidity, and, crucially, a dependable negative correlation to equities when markets came under stress. Even this cornerstone of defensive asset allocation has been increasingly scrutinised since the post-pandemic inflation shock.
Governments across developed markets are wrestling with the hangover of pandemic handouts, leaving them with higher spending and heavier debt burdens, while in many cases, economic growth remains elusive. Markets have become more sceptical about the idea that “risk-free” still means what it used to. Persistent inflation has sharpened this reassessment: investors aren’t paid in nominal promises, they live with real outcomes. When inflation erodes purchasing power and fiscal dynamics look less assured, government bonds lose some of their traditional shine.
Yet they haven’t lost their role.
Government bonds rethink
Despite the challenges, government bonds are still the closest thing we have to a dependable safe haven, so long as we rethink how we use them. The recent surge in yields worldwide reflects more than just central bank policy; it points to deeper concerns over governments’ long-term fiscal responsibility. In Japan, for example, the symbolism of the 40-year yield rising above 4% for the first time in decades was hard to ignore. In the US, a shift in Treasury ownership towards yield sensitive domestic investors has made the market more reactive to fiscal news and geopolitical events.
This doesn’t negate their value, but it does change how we should hold them. Diversifying across major developed markets, while hedging back to base currency, has become far more important. Concentration risk is back on the agenda.
See also: Fairview’s Yearsley: Has gold’s allure disappeared as the Iran war rages?
Other traditional safe havens have also begun to behave differently. Gold continues to play a vital role, particularly when investors worry about currency debasement or systemic shocks. But its behaviour has grown more cyclical and, at times, unexpectedly pro‑risk. The fact gold moved in tandem with equities in 2025, supported by strong ETF inflows and geopolitical tensions, shows how its identity as both a commodity and a quasi-currency can blur its defensive qualities. A subsequent 10% slide after Kevin Warsh’s nomination for Fed Chair underscored how sensitive it can still be to policy expectations.
Swiss resilience
Currencies have experienced similar shifts. Post‑GFC, the yen’s safe‑haven halo faded as ultra‑loose policy recast it as a carry‑trade funding currency. With Japan now in a policy transition, its defensive profile is evolving again, but the path is unlikely to be linear. In 2025, the US dollar once the unchallenged defensive leader, faced its worst year since 2017 as markets questioned US fiscal durability. Only the Swiss franc has remained consistently resilient, supported by low debt levels and political stability.
Given this fluid environment, relying on a single anchor, whether bonds, gold, or a particular currency, has become insufficient. Instead, constructing a more adaptable mix of safe haven assets is essential. This includes complementing core government bond exposure with low correlation or orthogonal strategies, such as cross-asset momentum, which can perform independently of traditional risk drivers.
See also: Quilter: 69% of fund groups still see gold as a safe haven
These strategies are not safe havens in the classic sense; their liquidity and behaviour vary. But their ability to deliver low or negative correlation during market stress makes them valuable tools in a modern risk management toolkit.
Safety has become a moving target as traditional havens shift, raising the stakes for portfolio advisers. Clients want clarity in a world where old rules no longer apply, requiring advisers to reassess asset allocation assumptions and communicate how safe haven behaviour varies across regimes. Incorporating truly low correlation assets can help portfolios stay resilient when a single haven falters.
Ultimately, investors must not only pick defensive assets but prepare clients for a world where safety is unpredictable and build portfolios that adapt as quickly as the challenges they face.
