What To Own Before A Bond Market Crisis

Submitted by QTR's Fringe Finance

Please read my full disclaimer on my “About” page. This is not financial advice.

As I wrote earlier today, foreign Treasury selling with yields already on the rise has perked up my attention.

For decades, investors have treated U.S. Treasuries as the ultimate safe haven. In nearly every major panic, money rushed into government bonds, not away from them.

But with deficits surging, interest costs climbing, and foreign demand for Treasuries no longer as unquestioned as it once was, some investors have started asking a different question: if the Treasury market itself ever came under severe stress, what assets could potentially hold up best?

The answer is far from straightforward, and it is important to emphasize that a true Treasury crisis remains a relatively low-probability scenario because the entire global financial system is built around the assumption that U.S. government debt remains stable.

Still, in a worst-case bond market environment, some assets appear structurally better positioned than others, so I wanted to explore potential ideas.

The first thing to understand is that a Treasury market crisis would likely not look like a normal recession or stock-market decline. It would probably involve some combination of rapidly rising yields, liquidity stress, foreign selling, repo-market dysfunction, and emergency intervention by the Federal Reserve.

In that environment, traditional portfolio assumptions could break down. Assets that usually offset equity weakness might suddenly move in the same direction as stocks, while investors search for anything perceived as insulated from sovereign debt instability or inflation risk...(READ THIS FULL ARTICLE AND WHAT I WOULD OWN).