Traditional Safe Havens "Wiped Out": Gold, US Treasury Bonds, and Japanese Yen All Fall, Dollar Becomes the Sole Winner

Traditional safe-haven assets—US Treasuries, Japanese Yen, Swiss Franc, and gold—have failed to provide any shelter for investors this week. Meanwhile, the US dollar, whose safe-haven status has been increasingly questioned, became one of the few major assets to appreciate.

These movements indicate that market dynamics can quickly reverse, with assets once seen as reliable safe havens suddenly losing their appeal due to shifting expectations regarding central bank policies, economic growth, and trader sentiment swings.

"Safe-haven investing is not what it used to be," said Christoph Rieger, Head of Rates and Credit Research at Commerzbank. "During a crisis, when all policy options call for increased supply and stand against rate cuts, 'safe assets' fail to provide hedging. Some market trends are rational, while others are not."

Below is a detailed analysis of why traditional safe havens failed this week:

US Treasuries

US government debt is supposed to be the world’s safest asset in turbulent times. However, the inflation threat caused by surging oil and natural gas prices has outweighed safe-haven demand.

The yield on the 10-year Treasury surged 20 basis points this week, on track for its biggest rise since last April’s tariff turmoil. This marks a dramatic reversal from last month’s biggest drop in over a year.

The inflation threat means traders are also expecting fewer rate cuts. Swap contracts are now pricing in only one or two rate cuts (25 basis points each), compared to up to three just a week ago.

US Treasuries lose safe-haven appeal

Gold

Gold performed poorly.

Pressed by a stronger dollar and rate hike expectations, the gold price fell by 3.5% this week. This non-yielding metal tends to be more attractive in low-rate environments.

A similar situation occurred after the outbreak of the Russia-Ukraine conflict. At the time, energy prices soared, rate hike expectations and the dollar strengthened—and gold weakened in the following months. That period has become a reference for some traders.

Since mid-August last year, gold’s roughly 54% rally also made it a speculative hotbed, with unusually high volatility.

A strong dollar weighs on gold

Japanese Yen

Again, the core problem is energy. Over 90% of Japan’s crude oil imports depend on the Middle East, with most transiting through the Strait of Hormuz, which is effectively shut down due to the war.

In addition, Japanese labor unions are demanding wage increases and inflation is beginning to pick up.

This has resulted in a stagflation dynamic—rather than demand-driven price increases that could prompt the Bank of Japan to aggressively tighten policy, which explains why the yen weakened about 1% against the dollar this week.

Japan’s Finance Minister, Shunichi Katayama, reiterated on Wednesday that the government could act to curb excessive exchange rate movements, including through market intervention.

Swiss Franc

Switzerland’s low debt, robust policies, and political neutrality have made the Swiss Franc the safe-haven currency of choice over the past year. But in the current currency crisis, its particular weakness is that policymakers are clearly eager to intervene to curb excessive appreciation.

Swiss National Bank Vice President Antoine Martin stated that amid Middle East turmoil, the central bank stands ready to intervene to restrain the franc’s rise, leading to a 1.5% drop in the franc against the dollar this week. He is concerned that safe-haven inflows will boost the franc, thereby suppressing inflation that is hovering near zero.

The Canadian dollar is the only G10 currency to strengthen against the US dollar this week

Meanwhile, Barclays FX strategists recommend investors buy franc against yen. They believe that although both currencies face energy risks, the franc is relatively better positioned. DTCC data show franc-dollar options flows also display resilience.