Chart of the week

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.

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