After rioters broke into the Capitol building on Wednesday, some investors were left contemplating what it meant for U.S. financial markets as the pre-eminent safe haven in the world.
The chaos, which saw a mob unsuccessfully attempt to halt the legislative certification of President-elect Joe Biden’s electoral victory, was reminiscent of nations where coups and mass civil discord reinforced perceptions that they represented risky destinations for investors.
Yet for many, the U.S.’s role as safe harbor for global investors during periods of turmoil remains unchallenged despite the reminder of the U.S.’s own political turbulence and societal divisions. These investors said the events in the nation’s capital were far from reaching the point where investor belief in the soundness of U.S. assets had been shaken.
“There’s a lot of ways in which the institutional environment for Treasurys and the dollar can change over the next few decades. But what happened in D.C. doesn’t rise to that threshold,” said Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle, in an interview.
Investors were unfazed by Wednesday’s events. Amid the violent scenes taking place in Washington, stocks pared gains modestly but ended higher, with the Dow Jones Industrial Average
clinching a record close. Major benchmarks were on track for solid weekly gains, with the Dow up 3.7% and the S&P 500
Treasurys remain deep, liquid and widely transacted assets, qualities that few other investments outside of the U.S. could compete against.
Al-Hussainy conceded there are precedents for havens shedding their secure status. He pointed to the collapse of the British pound after World War I when the U.K. government went off the gold standard and was eventually forced to borrow in dollars.
But he noted “none of that is happening.”
And analysts note financial crises have often had the reverse effect of asserting the dominance of U.S. assets even when the U.S. was the source of the crisis, such as in 2008 when the implosion of the housing market threatened to sink the U.S. and European banks.
Still, some worry whether continued political dysfunction and instability in Washington could hamper the long-term ability of politicians to govern the country.
For example, ratings firms have in the past suggested divisions in Congress and political deadlock could hamper the long-term creditworthiness of the U.S.’s debt, assessments largely ignored by money managers.
Back in 2011, S&P Global Ratings took away the U.S. federal government’s triple-A credit rating after a battle over the debt ceiling pushed it to the brink of default.
“We predict that this must affect longer-term risk assessments of investors around the world,” said Carl Weinberg, chief economist for High Frequency Economics, in a note.
In markets, the 10-year Treasury note yield
continued its weeklong push higher, rising to 1.11%. Yields rise as debt prices fall.
The greenback was flat for the week, with the ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, was trading at 89.94.