Are government bonds still safe havens in the context of COVID-19?

ABSTRACT

This study analyzes whether government bonds can act as safe havens in the context of COVID-19. Using a panel fixed effect model, data were collected for both advanced and emerging market economies from March 11, 2020, to June 30, 2021. Robustness tests were used to add to the credibility of the findings. Our evidence supports that government bonds maintained their safe haven status during the COVID-19 pandemic. Hence, investors can still use government bonds to hedge financial market risks in the uncertain environment associated with this pandemic. Additionally, the negative effects of the COVID-19 pandemic on government bond yields in emerging economies are larger than in advanced economies. Therefore, policymakers' measures should focus on reducing COVID-19 cases to alleviate panic and diminish economic fluctuations, especially for emerging economies. Regulators can also use short-term interest rates to guide market capital flow to avoid a liquidity crisis, reducing financial stress and market uncertainty. © 2021 Informa UK Limited, trading as Taylor & Francis Group.