Has the US lost its relative safe-haven appeal?

Senior Investment Strategist Tracey Manzi notes that while sentiment shifts can sway markets in the short-term, the US dollar's supremacy will likely remain intact.

American exceptionalism has been a dominant theme in financial markets – and for good reason. For decades, the US has offered investors a rare trifecta – enviable economic growth fueled by a resilient consumer, equity outperformance relative to the rest of the world and a strong dollar.

However, fallout from President Donald Trump’s tariff announcements shook investors’ confidence. The financial market’s unusual reaction following the April 2 announcement, which featured a simultaneous decline in the US dollar, Treasury prices and equities, led many investors to ask an uncomfortable question: Is the US at risk of losing its relative safe-haven status if Treasuries and the dollar are no longer providing protection during risk-off environments?

Below are reasons why we think the safe-haven status of the US is likely to remain intact.

Safe-haven status confirmed, but with a caveat

US Treasuries have long been considered the world’s pre-eminent safe-haven asset, predominately because Treasuries act as a crisis hedge for investors, meaning they retain their value or appreciate during periods of heightened economic or geopolitical stress.

The safe-haven status of the US is also supported by the central role it plays in global finance. Not only is the US dollar the most widely used currency in global transactions, US Treasuries serve as the benchmark rate in pricing everything from mortgages to consumer loans and corporate debt. Treasuries are also a key component in calculating equity risk premiums and the most common form of collateral used in the lending markets due to their credit worthiness, liquidity and widespread acceptance. Any perceived loss of confidence in US Treasuries or the dollar would quickly ripple across the globe. There simply is no other market that can rival what the US has to offer.

Despite these structural advantages, the world’s most systematically important bond market has had a few tremors in recent years, most notably in March 2020 when Treasuries did not behave as a traditional shock absorber as COVID panic set in. The dash for cash quickly overwhelmed market liquidity, which amplified rate volatility and led to wider bid-ask spreads. The result was soaring long-term bond yields, with the 30-year Treasury yield climbing 80 basis points in one week. With market functionality impaired, the Federal Reserve was forced to step in to purchase large quantities of Treasuries to stabilize the market.

Although these flare-ups have been rare, they do serve as a warning sign that the market’s resilience can sometimes be tested.

Can another bond market rival the US Treasury market?

While investors have become jittery as President Trump tries to reshape the global trade landscape and fiscal concerns are in the spotlight, right now there is no other market that matches the size, liquidity, depth or global influence of the US Treasury market. The US Treasury market, at $28.5 trillion¹, dwarfs all others. In fact, the size of the Treasury market is roughly equivalent to the combined government bond markets of China, Japan, UK, France, Italy and Germany.

Does the US dollar risk losing its reserve status? 

The sharp depreciation in the US dollar (down 10.2% YTD as of July 24, 2025) has reignited fears that the administration’s aggressive tariff policy has structurally damaged investors’ confidence in the currency. These concerns are overstated, particularly as the US dollar still accounts for almost 60% of all global reserves.

The weaker US dollar is not a crisis of confidence, but rather a recalibration of expectations amid significant trade and fiscal policy uncertainty. Souring sentiment, a correction from a highly overvalued state and shifting portfolio allocations have also been factors contributing to the move. However, don’t extrapolate the recent weakness as a signal that the US dollar’s reserve currency status is at risk.

While there could be more reserve diversification and a slow grind lower as its overvaluation unwinds, the US dollar is not likely to be replaced by another currency anytime soon. The dollar remains far too intertwined in the global financial markets for such a radical shift to occur in such a short time frame.

Bottom line

While the rapidly evolving trade landscape and concerns about the nation’s fiscal trajectory have caused some historic correlations to break down, this isn’t the start of a regime shift. Heightened market stress caused unusual price action during the April tariff frenzy, but we continue to believe that Treasuries will fulfill their role as a shock absorber if, and when, growth falters. Don’t confuse cyclical fluctuations in the dollar with the loss of reserve currency status.

While sentiment shifts can sway markets during shorter periods of time, the appeal and safe-haven status of the US is not something that will vanish overnight. Until there are viable alternatives, the Treasury market will remain the most dominant safe-haven bond market in the world and the dollar’s supremacy will remain intact.

¹SIFMA.org

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. Diversification does not guarantee a profit nor protect against loss. The S&P 500 is an unmanaged index of 500 widely held stocks. An investment cannot be made in this index. The performance mentioned does not include fees and charges, which would reduce an investor’s returns. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.