U.S. Treasuries remain safe bet for your money despite economic, political uncertainty

A recent email I received from “P” asked for my opinion of “the current safety of U.S. Treasuries in this uncertain time.”

I’m positive on the creditworthiness of U.S. Treasury securities. Global investors are taking the same position with their investments. Of course, Treasury prices fluctuate depending on inflation, the state of the economy and other factors. There are signs “bond market vigilantes” might push Treasury yields higher and bond prices lower because of economic and political concerns. But that kind of market risk is very different from worries about safety from default.

The caveat is, like many market observers and participants, I worry about the longer-term implications of fraying trust in the full faith and credit of the federal government in an era of debt-ceiling shenanigans and fiscal profligacy.

Few financial beliefs hold as much sway in the global capital markets than the idea Treasuries are as close as you can come to a “default-free” security. Investment primers highlight Treasuries as the safest asset in portfolios.

“Because Treasury securities are viewed as one of the safest assets in the world, they are broadly held by individuals — including in pension funds or mutual funds — and by institutions and central banks for use in everyday transactions,” noted a Government Accountability Office report. “In many ways, Treasury securities are the underpinning of the U.S. and global financial system, with Treasury securities being used in a broad range of financial transactions.”

Trust in the creditworthiness of U.S. Treasuries has eroded somewhat. Part of the blame lies with periodic political standoffs about raising the federal government’s debt ceiling. Recent congressional battles pushed the government toward the brink of the unthinkable: default.

Also weighing on the market are worries about long-term fiscal sustainability. Government debt exceeds $36 trillion, and there seems to be no end in sight. Depending on how much of the Trump administration’s tax cut ambitions become law, the government’s fiscal situation could deteriorate further.

These fiscal policy worries are emerging again. Legislators must suspend or increase the debt ceiling, and if there isn’t a negotiated resolution by March 14, the government could start shutting down. (Polymarket, the betting platform, puts the odds of a government shutdown at slightly more than 60%.)

The likelihood of the federal government truly defaulting on its debt is still unthinkable (although you can’t dismiss the risk of a brief technical default). The Treasury market is robust. Treasuries remain a safe haven for money.

Chris Farrell is senior economics contributor for “Marketplace” and a commentator for Minnesota Public Radio.