Are U.S. Treasuries Still a Safe Haven?

I couldn’t help but find it amusing yesterday when one of my fellow panelists during a discussion at The Art of Indexing Summit in New York City suggested that U.S. Treasury Bills, while once considered as a proxy for “risk-free return” perhaps are now a better proxy for “return-free risk.” All kidding aside, many well-respected economists throughout the world are now calling into question the perceived safe haven status of U.S. Treasuries and, in a similar vein, if the U.S. Dollar will remain as the world’s reserve currency. Regarding the latter, some have suggested that the U.S. Dollar could eventually be replaced by the Euro, the Japanese Yen or even the Chinese Yuan.

While legitimate concerns may exist with respect to the value of the U.S. Dollar and U.S. Treasuries, given the amount of outstanding government debt and low current level of interest rates, following the global credit crisis of 2008, we, at Hennion & Walsh, do not expect the United States to lose its preferred safe haven status anytime soon. One must consider that the U.S. has preserved this status through some of the most difficult economic periods in the history of the world-including 2008.   

We are not alone in this viewpoint. U.S. Treasury Secretary Timothy Geithner recently commented to CNBC that, “When the crisis was at its peak, when people were most concerned about the risk of collapse and deflation, what happened then? The world wanted to be in Treasuries, the safest, most liquid markets, and you saw the dollar risk when people were most concerned about the future of the world.”

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