The statement comes as market players are becoming more and more concerned about the dollar’s future as the US government shutdown over fiscal expenditures continues.
The Canada Pension Plan Investment Board warns that if US budgetary crisis keeps increasing, US Treasury bonds might lose their haven status.
Manroop Jhooty, head of overall fund management for the pension plan, said in an interview that “we fear that if the fiscal situation persists for a length of time” the Treasury market may cease to be a shelter.
The statement comes as market players are becoming more and more concerned about the dollar’s future as the US government shutdown over fiscal expenditures continues.
According to Jhooty, the pension plan, which oversees C$731.7 billion ($524.3 billion), invests in a variety of asset classes throughout the world and views bonds as a “useful diversifier in any asset allocation strategy.” With around half of its interests in the US, CPPIB is keeping to its exposure there for the time being.
Treasuries may start “to lose this diversification effect because it looks more and more like a risky asset and less and less like a risk-free asset,” he said, expressing concern about the US’s long-term fiscal situation.
The growing perception of gold as a safer alternative to the US currency is concerning billionaire investors. According to Ray Dalio, the metal rise is reminiscent of the 1970s, when it rose amid a period of high inflation and economic instability, and gold is “definitely” more of a shelter than the US currency.
Dalio’s remarks are in line with those of Ken Griffin of Citadel, who said that concerns about the US dollar are the reason for gold’s increase.
Shortly after the US abandoned the gold standard, the Trump administration’s trade war unleashed a wave of uncertainty that pushed the dollar into its worst decline since the 1970s, and it has subsequently dropped against all major currencies this year.
Meanwhile, the price of gold has risen more than 20% since the end of July to around $4,000 an ounce due to the US federal government closure and expectations that the Fed would continue to lower interest rates.
“Certainly gold has been a beneficiary as an alternative store of risk-free assets,” Jhooty said, adding that European currencies like the Swiss franc are other “stores of value.” The Toronto-based pension plan believes the US Treasury market has fared better than its counterparts in the UK and Japan, where comparable fiscal angst exists.