In the wake of the Moody’s U.S credit rating downgrade, U.S. Treasury securities have experienced significant volatility. Marta and Vanessa discuss whether Treasuries can still be relied on to offset stock market volatility.

Vanessa, post liberation day, stocks have had a wild ride. But if you're following along with CNBC or Bloomberg, it's actually the bond market that has investors worried.

Yeah. Everybody's been talking about the bond market, Marta. You know that bonds have always been seen as the safe part of a portfolio, especially US treasuries. So when there's market volatility and there's a lot of uncertainty, it's natural for investors to turn to them for some stability and some predictable returns. But is that still the case today?

Okay. So what you're describing is the very traditional understanding of treasuries. Mhmm. And, actually, if you're looking at long term treasuries, so treasuries with maturity, say, ten years and longer, Investors actually refer to that as a safe haven asset class for that very reason.

But when president Trump paused the tariffs, what you actually saw was a spike on the ten year treasury, which, of course, translated to losses for investors at least over that period of time. Yeah. And it caught a lot of people off guard. Right.

A lot of people by surprise, Marta.

What do you think drove those big moves in the bond market?

Well, people are searching for explanations, and there's three major explanations that are floating around there. The first is that it's an unwind of Wall Street trading activity. The second is that it's a buyer's strike from foreign investors, both private and central banks, and a third explanation relates to inflations and what tariffs could presumably do on that front. But if you look at a lot of credible voices who focus on US rates as their main gig, a lot of them are saying there's not a lot of evidence for either a buyer's strike or for an unwind of hedge fund activity.

Instead, what they're pointing to is regulations that have created these periodic seizures in the treasury market and then, of course, concerns around inflation.

Okay, Marta. So here's the question I have for for everyday investors who really rely on the bond market to smooth out the ups and downs of their portfolios. Right.

Even if we're not facing the worst case scenarios like you mentioned, where, foreign investors are no longer buying US treasuries, can we still count on bonds to deliver those steady predictable returns, or do you think we should be looking at alternatives like gold?

Well, here's where I think a very long term history is helpful, and we have that with stocks and bonds. So take a look at what I'm showing here, which is looking at the S and P five hundred indexes drawdowns of five percent or more going back to nineteen ninety seven. And you see that in the behavior of of treasuries both short term, long term. You see gold over this particular period.

And what you see is that, yes, there are these periods where you have massive offsetting gains in the treasury market when the equity market sells off. That was true for the global financial crisis. Mhmm. That was true for the dot com era.

But more broadly, you have these modest gains and modest losses, which are consistent with what we saw from the bond market during the breadth of the sell off that US equities experienced from late February through April eighth. If you take a look at gold, you can see these periods of big offsetting gains, sure, during these drawdowns, but also periods of loss, and that's consistent with what I would expect from gold. It's not so much an investment asset class as it is a speculative asset class, which makes it a little bit less reliable. I wouldn't say it's unusable, but I certainly wouldn't replace my bond portfolio with gold.

It's really, really pricey right now. That's right. It's pricey.

Especially if you're into the jewelry store lately. Let's talk about Bitcoin, Marta.

Is this something that investors should consider as a defensive asset?

Well, it's a newer asset class, so we don't have a same long history to review, but I would suggest it's a bit more like gold than treasuries. In other words, it's a bit more of a speculative asset class, making it harder to predict. So take a look at this particular exhibit where we're looking at the S and P five hundred's drawdowns and looking at Bitcoin performance during those periods, and what we can see is as big or larger losses when the s and p five hundred index has lost ground.

That's been the case even recently when concerns around tariffs have been front of mind. This track record, of course, doesn't guarantee that we're gonna see sell offs going forward when the S and P five hundred index or equities broadly are selling off, and Bitcoin and crypto have their own dynamics. Trump administration has favorable regulation, but it does mean that its price performance isn't predictably protected.

Alright, Marta. So given all of that, do you still think that it makes sense for most investors to use US treasuries as their main defensive play over gold or or even crypto?

Well, each person is gonna have to design his or her portfolio to to meet those individual needs. But it's my view that bonds will continue to offset equities when equities lose ground as they have during the most recent sell off and as they have throughout history. However, given the inflation dynamics today, I would really encourage investors to use the breadth of the treasury market, including short term treasuries since they don't have the same embedded inflation risk as longer term bonds.

Alright. What about gold or crypto?

Well, I don't dismiss those asset classes out of hand, but I would encourage investors to recognize their characteristics, and that includes a certain measure of unpredictability, especially over the short term.

So what you're telling me is don't sell my Bitcoin?

I'm saying know what you own.