(Bloomberg) -- It’s an old saw on Wall Street — when stocks tank, bonds rise. But incessant price pressures have upended the truism and left investors searching for refuge. 

During times of turbulence, investors typically pile into safe havens — easy to access assets that protect against losses – like US Treasuries and currencies like the Swiss franc or the Japanese yen. In a perfect world, these investments are supposed to offer stable income that is the polar opposite of risky bets like stocks, particularly during market downturns, when equities sell off. 

The reality, however, is getting much more complicated, especially since the onset of the global pandemic four years ago. Decades-old relationships have been falling apart with buyers of US bonds and the yen frequently losing money as their stock positions are also knocked down.

“There are just not many good, liquid safe havens in a time of rising inflation,” said Brent Donnelly, president of Spectra FX Solutions LLC and a veteran Wall Street trader with previous stints at Lehman Brothers and Citigroup. “Bonds don’t work, yen and franc don’t work. So if you are worried about a lower stock market, the best hedge right now is cash.”

The following charts show the challenge for investors:

Correlations Flip

The relationship between the S&P 500 Index and US bonds started to flip two years ago when US inflation quickened and the Federal Reserve embarked on its hiking cycle. Bullish bond bets now often lose money in tandem with long stock positions. The bond market’s losses since 2021 have been so severe that they all but wiped out any extra gains over cash in the past decade.

“Investors have been rethinking about what they considered as safe-haven assets,” said Jon Adams, chief investment officer for Calamos Wealth Management. “Fixed income is not protecting your portfolio the same way as before since different asset classes are getting more correlated.”

Yields in Driver’s Seat

Meanwhile, the interest-rate gap between the US and Japan or Switzerland has climbed to the highest in over a decade. As a result, Treasury yields now often dominate moves in the yen and the franc against the dollar, eroding the currencies’ haven characteristics.

Central bank interventions to limit Swiss franc moves dented the currency’s appeal long before the pandemic. The Swiss National Bank set a ceiling on the franc against the euro from 2011 to 2015, making it difficult for long franc trades to profit as Europe’s financial crisis brewed. Authorities have continued to curb franc strength after dropping the ceiling nine years ago.

Yen Broken 

The Japanese yen spot had mostly negative correlations with US equities before the Covid-19 virus upended markets, averaging -0.21 from 1998 to 2020. That means when stocks fell, the yen often rose against the dollar.

The relationship flipped three years ago, with an average correlation of 0.16 since 2021, pointing to a weaker yen when the S&P 500 sells off. 

Dollar Holds

The dollar operated as a haven during the global financial crisis and again proved its credentials when Covid hit. Since 2008, there have been 18 quarters when the S&P 500 index fell — the dollar rose in 13 out of those with an average gain of 3.95%. 

Concerns over the sustainability of US government borrowing and fiscal deficits have already imposed record losses on the long-duration bonds that are the backbones of many portfolios, that could eventually spill over unto the greenback.

Buy Gold 

Traditional 60/40 portfolios need to be tweaked, according to Bob Elliott, CEO and chief investment officer at Unlimited Funds Inc. Elliott sees the strategy of 60% of assets in equities and 40% in Treasuries as “a highly concentrated bet on disinflationary growth.” To diversify and hedge as havens disappear, he recommends allocating 10% to gold and another another 10% to other commodities. 

While the correlation between gold and the S&P 500 has been positive recently, it has never drifted too far away from zero in the long run: 24-month correlation between the two was less than 0.05 over the past decade and practically zero in half a century. In other words, returns on the metal and US equities did not depend on each other over long time periods.

As investors brace for a different macro environment and potentially much higher inflation for longer, “a lot of them can get a bigger bang on the buck without incurring more risk by adding gold,” Elliott concluded. 

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