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Why Havens Might Not Be Safe When Everybody Rushes In

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The coronavirus outbreak has set in motion a massive re-allocation of capital, as investors move money into so-called haven assets -- those thought to be safe in a global economic downturn. That’s brought turmoil in stock markets, record low borrowing costs for the U.S. government and higher prices for gold bracelets. It could also be creating new sets of risks. If enough worried investors pile into an asset class to drive its price high enough, and worst-case scenarios don’t come to pass, they may be locking in losses instead of avoiding them. The soaring demand for the safest asset of all, U.S. Treasuries, has even strained other markets as well.

Merriam-Webster defines a haven as a “refuge” or “a place of safety.” In the financial markets, “haven asset” is applied to a range of assets, primarily those whose values are expected to rise when global market sentiment sours into a so-called “risk off” environment. They usually behave counter-cyclically, or tend to appreciate when the business cycle is in a downdraft. For debt securities, it’s those also deemed to have no -- or little -- credit risk, meaning you’re assured of repayment when the bond matures. Haven assets are also expected to be very liquid, meaning they can be bought or sold in big sizes with ease nearly anytime.