Safe assets are a crucial component of any investment portfolio, providing stability and security in times of market volatility. Traditionally, safe assets have included cash, money market funds, and government bonds. However, not all government bonds are created equal, as evidenced by the surge in sovereign bond defaults in 2020.

Countries with a strong track record of repayment, robust institutions, and a large debt market tend to issue the safest government bonds. Investors flock to these bonds in times of market turmoil, seeking to preserve or increase their value as stock markets decline. Historically, UK, German, Japanese, and Swiss government bonds have been considered safe haven assets, with US Treasuries holding a special status due to the size of the US bond market and the dominance of the US dollar.

Despite the perceived safety of US government bonds, there are concerns about the country’s fiscal position, exacerbated by President Donald Trump’s tariffs. While the risk of a US government default remains low, investors may start demanding higher yields as compensation for holding Treasuries. However, the US dollar’s special status could still attract investors seeking a safe haven currency in times of global trade turmoil.

The concept of safe haven assets is not static and can evolve over time. The dollar’s recent weakening in response to US tariff announcements highlights this point. Gold has traditionally been viewed as a safe haven asset, providing a hedge against stock market volatility. However, it is not without risks, as returns can be volatile.

Bitcoin has also been touted as a safe haven asset by some, given its decentralized nature. However, research shows that it has had zero days of negative correlation with major stock price indices between 2014 and 2022. While President Trump has shown a favorable attitude towards cryptocurrencies, their status as safe assets remains uncertain.

As the investment landscape continues to evolve, investors must carefully evaluate the nature of safe assets and safe haven assets. While traditional options like government bonds and gold offer stability, newer alternatives like bitcoin present unique opportunities and risks. Ultimately, the definition of a safe haven asset will depend on the specific challenges facing the market at any given time.