Reassessing the Role of US Treasuries as Safe Haven

This research article examines the evolving status of US Treasuries as a global risk-free asset amidst rising fiscal concerns and policy uncertainty. It documents a decline in the convenience yield of Treasuries, indicating a weakening of their traditional safe-haven function. Key findings highlight diminished hedging power, structural drivers undermining Treasury demand, and a breakdown in historical correlations with the US dollar. The paper discusses the implications for investment strategies, suggesting that a diversified approach incorporating alternative safe-haven assets may provide better downside protection. It emphasizes the need for institutional investors to recalibrate portfolio construction frameworks and consider the changing landscape of safe-haven assets. The analysis includes a review of macroeconomic forces affecting the convenience yield and the impact of recent fiscal developments on investor perceptions. The findings call for a reassessment of the reliance on long-duration Treasuries in risk management frameworks, advocating for a more dynamic allocation strategy based on current economic signals.