What Is a Safe Haven Asset and Why Does It Matter?

A safe haven asset is an investment expected to retain or increase in value during periods of market turbulence—and for four decades, U.S. Treasury bonds dominated that role. However, recent geopolitical shocks suggest their monopoly may be ending. As escalating tensions in the Middle East and trade disruptions test market resilience in 2025, investors are reassessing what constitutes true safety, prompting a shift toward gold, the Swiss franc, and even Bitcoin as alternatives.

The Core Attributes of Safe Havens

Safe haven assets are investments that typically retain or gain value during economic downturns, distinguished from ordinary defensive plays by their performance in extreme stress scenarios. High liquidity—the ability to convert to cash easily—anchors their appeal, alongside political stability, independence from other countries, and the backing of economies with positive growth expectations.

According to Chase, Central Banks hold about 60% of their foreign exchange reserves in U.S. dollars, underscoring the currency’s structural importance. Yet no safe-haven asset is guaranteed to produce positive returns in all market downturns, a reality demonstrated repeatedly in 2025.

Flight-to-Safety: How Capital Flows in Crises

When uncertainty spikes, investors sell what they perceive as higher-risk investments and purchase safer alternatives such as gold and government bonds. This flight-to-quality phenomenon is typically accompanied by increased demand for government-backed assets and declining demand for assets backed by private agents.

The mechanism operates through multiple channels. Negative asset price shocks tighten investors’ balance sheets, forcing liquidation and driving preference toward more liquid, less risky assets—a feedback loop that amplifies the initial shock. According to NBER research, during flight-to-safety episodes in the US, significant flows move out of equity funds and into government bond and money market funds.

Episodes are typically characterized by large, positive bond returns accompanied by large, negative equity returns and elevated market stress. Yet crucially, an asset considered a safe haven isn’t guaranteed to be safe during tough stretches—gold did not behave like a traditional safe-haven asset at the onset of the COVID-19 pandemic in 2020.

Why Treasurys Dominated for Four Decades

Investors have historically had confidence in bonds issued by governments of developed economies, with U.S. Treasury bills the most popular due to the credit status of the US government and high quality of income in dollars. Their dominance rested on unmatched market depth, dollar centrality, and geopolitical clout.

The U.S. Treasury market is the largest securities market in the world, with nearly $30 trillion in marketable debt outstanding. It is used by the Treasury Department to finance the US government, by the Fed to implement monetary policy, and by numerous financial institutions as a safe asset. According to LPL Financial, foreign investors own roughly $8.5 trillion of the $26 trillion in marketable Treasury debt outstanding, with roughly half due to trade surpluses.

Yet State Street research documents a secular decline in the convenience yield of Treasurys and shows how this erosion has weakened their traditional safe-haven function. Post-2022, long-duration Treasurys no longer reliably offset equity drawdowns, while elevated US debt-to-GDP, declining foreign demand, and inflation volatility are undermining Treasury demand.

The March 2020 Warning Signal

A critical inflection point occurred during the COVID-19 market chaos. Although the dollar appreciated in March 2020, the degree of appreciation was much smaller than in 2008, despite the 2020 macroeconomic shock appearing as severe as the 2008 financial crisis. More troubling, foreign investors, including foreign central banks, sold about 2.5 percent ($311 billion) of long-term Treasuries.

According to NBER, the positive correlation between long-term Treasuries and risk assets raises the prospect that investors questioned the safe-haven status of these bonds. The Fed’s purchases of long-term Treasury bonds were critical in restoring market function, and by September 2020 the negative correlation pattern had been restored. Yet whether the events were a technical aberration or the canary in the coal mine of investors shifting toward a nondollar equilibrium remains an open question.

April 2025: The Safe Haven Paradox

This question found a partial answer in April 2025. As global equity markets nosedived amid tariff wars, Treasurys exhibited atypical behaviour—yields rose rather than fell. The 10-year yield surged 10 basis points to 4.40%, contributing to a 50 basis point jump over three trading sessions.

According to Euronews, this counterintuitive movement prompted renewed doubts among investors over whether Treasurys can still be relied upon in periods of acute uncertainty. BIS research documented that historically positive correlations between US Treasurys and other safe assets approached zero since April, possibly indicating a weakening of Treasurys’ safe haven properties.

Bid-ask spreads peaked around April 9, 2025, while order book depth declined to the lowest levels since March 2023, according to New York Fed research. Though liquidity recovered by late summer, the episode exposed structural vulnerability.

Gold: The Ancient Alternative Resurges

As Treasury credibility wavered, gold reclaimed its historical role. Gold has taken centre stage in 2025, soaring 50% and outpacing leading asset classes. According to LSEG, central bank buying and Fed easing have propelled gold to its strongest rally since 1979, driven by structural demand from central banks and monetary easing.

As trust in Treasurys weakened, bullion gained 17% since the start of the year, outperforming both the greenback and long-dated US government bonds by more than 20 percentage points. As the status of the dollar deteriorated due to fiscal policy, trade policy and geopolitical developments, gold became a beneficiary, whereas the Euro, British pound, and Yen were not considered reliable alternatives.

Yet gold carries its own risks. According to Morningstar, bitcoin is much less liquid and at least 4 times as volatile as gold, with several drawdowns exceeding 70%. While gold has lived up to its historic role in 2025, attracting flows in times of stress even as bitcoin underperformed, gold is known for its volatility, lack of ongoing yield, and mixed track record as an inflation hedge.

The Swiss Franc: Stability Through Neutrality

Switzerland’s currency has emerged as perhaps the clearest winner. Over 2025, the franc gained almost 13% against the U.S. dollar, extending gains into 2026 and hitting an 11-year high. According to CNBC, unlike the dollar and yen, Switzerland’s political stability, low debt, and diversified economy make it a safe-haven asset.

Even in a global context, the Swiss franc remains the preferred safe-haven currency, and in such an environment benefits as a stable, liquid safe haven. Research published in Finance Research Letters found that Bitcoin and the Swiss Franc function as safe havens in relation to geopolitical risk in times of market crashes while Gold and Treasury bonds do not.

Today, the Swiss franc is seen as a global symbol of reliability, with trust built on Swiss neutrality, a resilient economy, independent monetary policy, and strong confidence in institutions. Yet a strong franc makes Swiss exports more expensive, a persistent concern for the central bank.