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Commentary By Allison Schrager

How Safe Assets Became Investors' Biggest Risk

Economics, Economics, Economics Finance, Tax & Budget

"Risk free" is the most important concept in financial markets because it's the baseline for setting the value of pretty much everything. Now the pandemic has drained it of meaning.

Markets are weird right now.  The value of risk-free assets has gone all out of whack, and if that doesn't seem scary, keep reading.

Sri Lanka is facing a debt crisis, and yet its stock market is up more than 60% in the last year. The Federal Reserve is getting ready to hike rates to combat inflation, and the higher interest rates move the lower stock prices should be. The S&P 500 may be down the last few weeks, but it’s still up more than 20% for the last 12 months.

Rate increases in America are especially treacherous for emerging markets, which face additional headwinds, and yet emerging-market funds are up 25% from before the pandemic. Yields for low-quality BBB bonds are less than inflation. And now celebrities can’t stop talking about investing in cryptocurrencies.

Continue reading the entire piece here at Bloomberg Opinion (paywall)


Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.

This piece originally appeared in Bloomberg Opinion