The idea of being able to stash money away in safe havens when markets get choppy or a bull run appears to be reaching its final stages looks increasingly like a thing of the past.
While the financial crisis of 2008 did much to tear down the notion that money can be invested in a way so as to mitigate against loss in virtually all circumstances, people have persisted to look for and refer to so-called safe havens.
Sovereign bonds issued by the world’s major developed economies, particularly the United States, United Kingdom and Germany have long been considered the nailed-on safe haven options, but in the age of virtually zero interest rates every word uttered by central bank chiefs shakes the sovereign bond market.
Each time Janet Yellen, Mark Carney or Mario Draghi holds a news conference, their comments are used to readjust interest rate expectations, and result in corresponding movements in yields.
Take German bunds as a case in point. Yields have rocketed over recent weeks, going from near on nothing to over 1%. US treasuries have also seen steep rises.
Private bank Coutts addressed this in a note produced by its investment office yesterday. “These days, bond markets seem to be acutely sensitive to any signs that the Fed is inching closer to its first hike since the global financial crisis took interest rates to record lows across the world,” Coutts said.
“Last week we noted that we were turning more negative on safe-haven government bonds in general, which we have long felt were a poor long-term investment. That’s even more the case now that the US economic recovery is progressing towards an inevitable rate rise and the global economic recovery is also gaining traction,” it added.
Another favourite route to assuring investors that when markets go bad they will still make money, or at least not lose it, is hedge funds or their more transparent, better regulated cousins, absolute return funds.
