Economists at Natixis seek to determine whether or not the Dollar or Dollar-denominated bonds continue to play a safe haven role in times of crisis and rising risk aversion.
Is the Dollar still a safe haven asset?
“We found a significant effect of a rise in risk aversion (in the sense that higher risk aversion leads to a lower US long-term interest rate and an appreciation of the Dollar) as regards the Dollar long-term interest rate and the Dollar/Euro exchange rate, but, curiously, not as regards non-residents’ purchases of US bonds and liquid assets.”
“We also found that in the recent period (since 2012), the effect of risk aversion on the long-term interest rate and on the Dollar/Euro exchange rate has been stronger than in previous periods.”
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Twenty-first century investors have embraced the dollar and dollar-denominated bonds as secure vehicles for practicing safety-friendly investing. According to Natixis, a reputable Paris-based asset management company, this trend is going steady.
The report outlines positive correlation in regards to the US Dollar and dollar-denominated bond yields. As a result, both the US dollar and these bonds continue to be a safe-haven for investors around the globe. Moreover, those looking for a predictable and reliable destination for their hard earned capital, find solace in these two options.
The study further lists other benefits of these two assets. Primarily, the investors trust the high liquidity of the US Dollar. On the monetary side, a US Dollar denominated bond yields more stability over other assets. This feature has particularly come in handy during a period of great uncertainty in the markets.
The report also highlights the red-hot demand for dollars and dollars-denominated instruments that are present in emerging markets. Investing in these assets preserves value in such markets, due to its in-store liquidity. This further boosts the capital of investors in such uncertain times.
In summary, Natixis’ report clearly emphasizes the significance of the US dollar and dollars-denominated instruments, which continues to reign as king of safe-haven investments. Practicality and finances have pushed these assets to the forefront of considered investments, and it looks like the trend is here to stay.