Are U.S. Treasury Bonds Still a Safe Haven?

Safe assets are integral to the functioning of banks, financial markets, and the international financial system. Financial market participants use safe assets to meet liquidity and transaction needs, as high-quality collateral for loans and derivative contracts, and as default-free stores of value. These services imply a nonpecuniary return on safe assets, a convenience yield, that drives up the prices of safe assets and lowers their expected return in equilibrium.