Safe haven sell-off highlights need for non-correlated asset classes
How safe are “safe havens”? Our chart compares the trajectories of gold and 10-year Treasuries alongside equities’ rapid descent.
March 20, 2020 | 1 minute read
As market volatility has become increasingly unrelenting in the past several weeks, many investors have sought shelter from the storm that is currently ravaging global equity markets.
Traditionally in environments like today’s, investors could turn toward safe-haven assets – U.S. Treasury securities and gold among the most common – to protect their portfolio from losses. For the early part of the equity market’s extraordinarily rapid descent into a bear market, U.S. Treasuries and gold held up well.
The S&P 500 has fallen nearly 30% after hitting a new all-time high on February 19. And in the ensuing approximately two weeks, for example, gold continued to climb modestly while the 10-year U.S. Treasury yield plumbed historic new lows. (Remember that bond prices rise as yields fall.)
As the chart highlights, however, both asset classes have begun to sustain losses along with stocks in recent weeks. Gold prices have fallen nearly 11% since March 6 whereas the 10-year yield has more than doubled since March 9 – from 0.54% to 1.18%.
Correlated sell-offs across many markets, as we are witnessing today and largely witnessed throughout the global financial crisis, highlight the importance of incorporating a wide range of alternative asset classes to help diversify a portfolio, particularly during periods of market stress.
