Institutional Investors Dump U.S. Treasuries and Dollar in Favor of Other Safe-Haven Assets

Key Points:Institutional investors reduced exposure to U.S. Treasuries and dollar assets to multi-year lows in June.Market strategist notes a shift away from traditional safe havens amid global uncertainty.Japanese and European bonds saw increased inflows in contrast.Institutional investors are increasingly turning away from U.S. Treasuries and the U.S. dollar, traditionally viewed as safe-haven assets, according to recent analysis by Marija Veitmane, a market strategist at State Street Global Markets.Citing data from the firm’s custody database, Veitmane revealed that institutional portfolios saw a notable drop in holdings of U.S. government bonds and dollar-denominated assets in June, marking the lowest levels in many years. Despite a general uptick in risk appetite, as seen in increased portfolio exposure to riskier assets, the retreat from Treasuries and the dollar stands out.“Investors are increasingly questioning the safe-haven status of these two asset classes,” Veitmane said, noting that neither the Q1 U.S. equity sell-off, fiscal sustainability concerns in Q2, nor the recent Middle East conflict prompted a return to the dollar or Treasuries—historically favored in times of uncertainty.In stark contrast, Japanese and European bonds recorded net inflows, suggesting a geographic shift in safe-haven preferences. The divergence reflects growing skepticism over the fiscal outlook in the U.S. and the changing global macro environment.