US Treasury bonds are at risk of losing their haven status should US fiscal stress continue to build, according to Canada Pension Plan Investment Board.
“We worry that if the fiscal scenario continues for a period of time” the Treasury market could stop being a haven, Manroop Jhooty, the pension plan’s head of total fund management, said in an interview.
The remark comes as the US government shutdown over fiscal spending drags on and market participants increasingly sound warnings over the dollar’s fate.
The pension plan, which manages C$731.7 billion ($524.3 billion), invests across several asset classes globally, and considers bonds to be “good diversifier in any asset allocation strategy,” Jhooty said. For now, CPPIB is sticking to its US exposure, with the country making up roughly half of its holdings.
But the concern about the long-term fiscal situation in the US is that Treasuries could begin “to lose this diversification effect because it looks more and more like a risky asset and less and less like a risk-free asset,” he said.
Billionaire investors are worrying that gold is increasingly seen as safer than the US dollar. Ray Dalio said earlier that gold is “certainly” more of a haven than the US dollar and that the bullion rally is reminiscent of the 1970s, when it surged during a time of high inflation and economic instability.
Dalio’s comments echo those of Citadel’s Ken Griffin, who said gold’s rise reflects anxiety about the US currency.
The dollar has weakened against every major currency this year after the uncertainty unleashed by President Donald Trump’s trade war sent it into the biggest slide since the 1970s, not long after the US abandoned the gold standard.
In the meantime, the US federal government shutdown and speculation that the Federal Reserve will keep cutting interest rates has pushed the price of gold up by more than 20% since the end of July, to roughly $4,000 an ounce.
While the Toronto-based pension plan thinks the US Treasury market has held up better than its counterparts in the UK and Japan, where similar fiscal angst exists, “certainly gold has been a beneficiary as an alternative store of risk-free assets,” Jhooty said, adding that European currencies such as the Swiss franc are other “stores of value.”
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