Are U.S. Treasuries still a safe haven?

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U.S. Treasuries have long been the go-to for safety, boasting lower volatility and steady returns compared to stocks. But recent years have flipped that script.

Long-term bonds, once the darlings of cautious investors, are now dubbed "yield yawners" due to underperformance. With tariffs adding a fresh layer of uncertainty, investors are left wondering: what's the deal with Treasuries?

Takeaways:

U.S. Treasuries have become more volatile due to rising interest rates and tariffs

Treasury auctions serve as a sign of market demand

Inflation and tariffs make traditional investment strategies more difficult

Investors could use options like Covered Calls to manage risks

1. A tough era for bond investors

Bond investors have been taking hits left and right in recent years:

In 2022, faced with soaring inflation, the Federal Reserve raised interest rates at the fastest pace in 40 years, causing bond yields to rise sharply.

By 2023, hedge fund mogul Bill Ackman had taken short positions on U.S. Treasuries, driving the 10-year yield above 5%.

The year 2024 saw a brief sigh of relief with rate cuts, only for Trump’s reelection to send rates climbing again.

In 2025, a flurry of tariff policies injected even more uncertainty. The "reciprocal tariffs" sent Treasury yields on a rollercoaster.

Past performance does not guarantee future results. This is for information and illustrative purposes only

Remember, bond prices and yields move in opposite directions. If you hold a bond with a 3% coupon and new bonds offer 4%, yours must drop in price until the yield aligns.

Longer-term bonds are even more sensitive to rate changes. Many tried "buying the dip" with long-term Treasuries, only to find returns elusive.

2. Treasury auctions

We often see art auctions, but you may not know that U.S. Treasuries are issued similarly. Buyers and sellers assess the asset value, negotiating until an agreement is reached.

However, each U.S. Treasury auction involves billions of dollars and impacts a bond market worth tens of trillions.

In 2023, as Treasury yields surged, auctions went cold. High winning yields and less participation signaled weak demand, sparking market adjustments. Come April 2025, with Trump’s global tariff spree, auctions cooled again, leading to another sell-off

3. Inflation uncertainty

Traditionally, Treasuries have been the storm shelter during market turmoil—think 2008’s financial crisis and the 2020 COVID shock. Yet, 2022 saw both stocks and bonds struggling. By April 2025, post-tariff, both markets faced sell-offs. The key difference now? Inflation.

During a recession, the Fed typically cuts rates to ease borrowing costs. But with rampant inflation, it’s a different ball game. In 2022, the Fed lifted rates above 5%. Though inflation eased, it didn’t hit targets, keeping high yields on the field.

Bill Ackman’s bearish Treasury stance echoed this, predicting persistent inflation.

Source: X/BillAckman. Aug 2, 2023.

This is for information and illustrative purposes only. It should not be relied on as advice or a recommendation.

Trump 2.0’s tariffs only muddy the inflation waters further. Fed officials hint that steady policy rates might be the best defense against tariff-induced inflation. And if the tariff war de-escalates, U.S. Treasury yields may potentially decline.

4. Navigating a volatile market

U.S. Treasuries offer a wide range of durations, from as short as one month to over 30 years.

Holding individual bonds requires more active management, so regular investors might consider using ETFs for a diversified bond portfolio

If you already hold Treasury-related products and remain optimistic about their long-term performance, you might consider using options to reduce costs.

A common approach is Covered Call—selling call options while holding the underlying asset.

The premium collected could offset losses if prices continue to fluctuate or decline. But if the trend reverses in the future, you also risk losing the gains from the potential surge.

Options involve higher risks and volatility than stocks, and investors should study them thoroughly before participating. Moomoo Learn offers a wealth of courses on the subject