New taxonomy reveals shifting safe-haven properties of US Treasuries
The Banque de France paper proposes a new empirical taxonomy of safe assets based on their safe-haven behavior during global risk aversion. It finds that U.S. Treasuries have exhibited weaker safe-haven properties since the pandemic, reflecting a broader reconfiguration of global safe assets.
A new multi-criteria safe-haven ranking
A new Banque de France working paper introduces an empirical taxonomy of safe assets, categorizing them by their safe-haven behavior during periods of global risk aversion.
The multi-criteria framework assesses bond securities, currencies, and alternative assets, identifying three groups: global safe assets, credit-sensitive assets, and emerging assets.
The study, spanning over two decades of data, consistently ranks sovereign bonds issued by G10 economies, including U.S. Treasuries, as exhibiting the strongest safe-haven properties.
Gold emerges as the only alternative asset with consistently high scores, particularly during geopolitical risk.
A limited set of corporate bond markets also displays partial safe-asset characteristics, while the U.S. dollar, Japanese yen, and Swiss franc are identified as the most reliable safe-haven currencies.
This comprehensive ranking provides a nuanced understanding of asset resilience during market stress, moving beyond traditional assumptions of risk-free status.
Post-pandemic reconfiguration of safe assets
The paper further analyzes the evolution of these safe-haven properties, revealing a weakening in U.S. Treasuries' effectiveness since the pandemic.
However, this decline is not unique to the United States but reflects a broader reconfiguration of hedging properties across global safe assets.
In contrast, the U.S. dollar maintains its dominant position as the leading safe-haven currency.
The researchers associate these weaker safe-haven properties with factors such as higher inflation, rising public debt levels, and reduced asset availability, partly due to central bank purchases.
These findings contribute to understanding how safe assets adapt to a changing global financial environment.
Beyond the US-centric narrative
This study offers a crucial, nuanced perspective on the evolving role of safe assets, effectively challenging a purely US-centric view of their decline.
Its multi-criteria framework highlights systemic shifts in global financial stability rather than isolated asset-specific issues, providing valuable insights for policymakers.
However, the paper's implications for immediate, concrete policy adjustments or market strategies still require further practical interpretation.