With the severe pressure being applied to US Treasuries by the actions of the Trump administration, investors are casting around for safe haven alternatives. Among the favourites mentioned to us this week by fund managers and family offices are gold and German bunds (government debt), but some analysts are arguing that US debt may offer its own refuge.
It comes down to one key thing: in the vast majority of cases, short-term U.S. government bonds make for the best safe haven assets, according to Eugenia Mykuliak, founder of B2Prime Group. “They’re highly liquid, carry minimal risk, and are often treated almost like cash on balance sheets,” she argues.
Yields without volatility
In times of uncertainty, like what we’re seeing now, investors want something they can count on. Short-term government bonds offer decent yields without tying up money for too long, and they help shield portfolios from volatility. Honestly, I would argue that even gold doesn’t look as attractive by comparison right now.
“I think it’s likely that, for the foreseeable future, this trend will continue,” explains Mykuliak. “Right now, there’s just too much uncertainty around the U.S. tariffs, interest rates and broader geopolitical conditions. On one hand, there’s been talk about rate cuts, and political pressure is. But on the other hand, the Fed hasn’t sent any strong signals that it’s ready to actually do it any time soon.”
For many investors, that kind of mixed messaging makes it hard to commit any sort of longer-term strategies. So naturally, short-term bonds look more appealing in this setting — they’re easier to sell, and they give investors some flexibility while things settle.
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“As far as the attractive side goes, I’d say investment-grade corporate bonds are worth taking a look at,” Mykuliak told us. “Especially those from solid, well-established companies — they offer reasonable yield without being too risky, since such businesses are less likely to run into financial trouble. Intermediate-term government bonds are also a good option for those wanting to see a bit more long-term yield without taking on too much risk exposure.”
There are very few US companies that boast a AAA rating on their debt from the likes of Standard & Poor’s or Fitch. Apple NASDAQ:AAPL has been given a long term AAA rating by Moody’s while S&P has awarded both Microsoft NASDAQ:MSFT and Johnson & Johnson NYSE:JNJ AAA ratings for their debt.
Avoid the high yield debt space
And as for the vulnerable categories, high-yield bonds are definitely at the top of the list. These tend to be issued by companies with weaker credit profiles, so in shaky economic conditions, they are more likely to go bankrupt. Plus, credit spreads in the high-yield space are pretty tight, so you’re not getting paid all that much for taking on the extra risk.
Aside from that, leveraged loans also fall into the “vulnerable” camp. These are given to companies with already high levels of debt, so they carry more risk by nature. And if the economy slows down or rates stay high for longer, these companies can struggle to keep up with payments. We already saw how these things can unravel during the 2008 financial crisis.
