Are US Treasuries Losing Their Safe-Haven Status?

This story will be featured in the upcoming Financial Poise Weekly newsletter.

US federal debt hit $40 trillion last week, according to Treasury data. As that mountain of debt continues to grow, there are signs investors no longer see US Treasuries as quite the safe haven they once were.

According to Greg Ip from The Wall Street Journal:

• Treasuries have historically been so prized for their safety that investors were willing to accept lower yields to own them. That “safety premium” now appears to be fading, and investors are now demanding higher yields to absorb the growing supply of government debt.
• Investors also have less incentive to choose Treasuries over other highly rated bonds.  Their yield advantage over AAA corporate bonds has disappeared since 2022, and Treasuries have sometimes fallen alongside stocks during periods of market stress.
• There’s little sign the supply pressure will ease. Persistent deficits mean the government will continue issuing large amounts of debt, potentially requiring higher yields to entice investors to keep buying.

Our take? Treasuries falling alongside stocks, rather than against them, guts the whole premise of the old 60/40 portfolio, which assumes the bond half zigs when the stock half zags. More importantly, at the risk of saying the obvious, when the full faith and credit of the United States is in question, it may be time to get more defensive about one’s portfolio.