Infectious disease (COVID-19)-related uncertainty and the safe-haven features of bonds markets

Abstract

Purpose This study aims to examine the hedge, diversifier and safe-haven properties of bonds against infectious disease-related equity market volatility (IDEMV), like COVID-19. Design/methodology/approach The authors apply wavelet coherence methodology on the daily data of IDEMV and bond market (US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and Europe) indices from 1 January 2000 to 14 February 2021. Findings The results show no significant co-movement between these bond indices and IDEMV, thus confirming that they serve as a hedge against IDEMV. However, during the turbulent period like COVID-19, the authors find that the US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and European bond markets act as safe-haven against IDEMV, whereas the UK, US, Japan and Canadian bond markets demonstrate an in-phase and positive co-movement with IDEMV during COVID-19, suggesting their role as a diversifier. Research limitations/implications The study findings are important for investors and portfolio managers regarding risk management, portfolio diversification and investment strategies. Originality/value The authors contribute to the fast growing body of work on the financial impacts of COVID-19 as well as to ongoing consideration of whether a bond is a safe-haven investment.