The risk-off trade is becoming overcrowded
Worries about President Donald Trump’s tariff proposals are fueling a rush toward safe haven assets including gold and Treasury bills. Just don’t label it a panic; it’s more like a concern.Just don’t label it a panic; it’s more of a concern. It’s more concern than panic. Stock Market Updates With forecasts on inflation rising, Wall Street has been getting ready for the tariff rollout on Wednesday. By 0.5 percentage points, Goldman Sachs increased 2025 core inflation forecast. Targets for the S&P 500, however, are going lower. The worry is that tariffs would raise consumer prices and limit economic expansion.That has caused investors to invest at a dizzying speed into the world’s safest assets.
On an average, net flows into the SPDR Gold Shares exchange-traded fund in February and March were more than 30 times the average observed over the last two decades.The front-month Comex Gold futures contract rose 19% in the first quarter, the greatest increase for gold since 1986. On Tuesday, the precious metal remained near its record level. With net flows of $3.2 billion in March, the SPDR Bloomberg 1-3 Month T-Bill ETF recorded its largest monthly flow in two years. It implies the market is looking for stability and wants to lodge its cash in low-duration, highly liquid assets as a buffer against possible volatility.
Longer-term U.S. government bond yields have also fallen to their lowest point of the year under a risk-off attitude. Declining yields show more bond demand.On Tuesday, the 10-year yield fell to 4.156%, its lowest point since Dec. 6. Revising the prediction down from 4.35% on Tuesday, Goldman forecasts 10-year sliding to 4% by year-end. This year, the 30-year yield is fifth lowest. According to Stephen Spratt, a rates strategist at Société Générale SA in Hong Kong, “Investors’ nervousness is showing up in hedge behaviour.” “With markets expecting a broad tariff move to be immediate on the inflation side, but biting on the growth side, duration longs are in vogue.”Just look at the corporate bond market; there just aren’t enough indicators to declare this a full-blown panic.
As of Monday’s close, junk bond spreads—the extra returns the most risky corporations are providing above risk-free bonds—moved to 3.55 percentage points, the most since August. But by any standard, that cannot be deemed ugly. The 10-year average for these spreads is roughly four percentage points; the market has been below three percentage points until last month. David Rosenberg of Rosenberg Research stated he doesn’t “like the spread very much at all,” which suggests they are not providing much yield over Treasuries. Bonds from U.S. blue-chip corporations follow the same reasoning. Though still below historical highs, those rated Baa provide 1.76 percentage points in extra yield, an eight-month high.Tom Essaye of Sevens Report said, “A rise above 2% consistently that would be a much more negative signal that the bond market is starting to agree with nervous investors about future economic growth.
“Think about shares as well. Down more than 4% this year, the SPDR S&P 500 ETF Trust experienced an outflow of $18.4 billion in March. The market, however, is not far from its record level. After finishing 0.4% higher on Tuesday, the S&P 500 is 8.3% off its last record close of 6144.15 on Feb. 19. The administration’s plans are unknown, but no one is running for the hills just yet.
