3 'risk-off' trades are going crazy right now

Stock are under pressure, and the British pound just touched to a new three-decade low of 1.3003 against the dollar.

This follows several glum pieces of news coming out of Europe.

The UK’s Standard Life Investments stopped retail investors from pulling out of one of the biggest property funds in the country, slamming property and financial stocks, as JonesTrading’s Dave Lutz noted in his trader chat on Tuesday.

Moreover, several reports over the long weekend highlighted the risks that Italian banks pose to the region. The Italian government is considering stimulating the finances of the lender Banca Monte dei Paschi di Siena SpA.

Plus, earlier on Tuesday, the Bank of England said it would step in to provide liquidity if a credit crunch develops. It lowered the countercyclical capital buffer — the amount banks need to cushion against losses in a financial crisis — to encourage lending.

But under the surface of glum news coming out of Europe, three big “risk-off” trades stand out:

  1. The Japanese yen is surging
  2. US Treasurys are rallying
  3. Gold is spiking

The basic outline here is that betting on yen appreciation is popular during periods of heightened uncertainty.

US Treasurys, considered the safest place investors can park their money, and gold, which is a traditional “end of the world” trade, are also often bought up aggressively by investors in times of stress.

The yen strengthened by 1.0% to 101.56 per dollar as if 12:39 p.m. ET. The currency has been stronger versus the dollar (and the pound) ever since the Brexit vote. Notably, this
creates problems for the Japanese government and central bank, both of which have been struggling to jump-start the economy via the ambitious Abenomics plan. Plus, it has folks worried about corporate profits.

US Treasurys are seeing a huge bid. The benchmark 10-year yield yield is down 10 basis points at a record low 1.36% near 12:46 p.m.

And finally, gold futures are up 1.3% at $1,356.60 per ounce as of 12:46 p.m. ET. This is the highest level for the metal since March 2014.

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