Flight to Quality
Flight to Quality Flight to quality refers to a shift in investor behavior during times of uncertainty. When markets become unstable or the economy shows signs of trouble, investors often move their money from riskier assets, like stocks or corporate bonds—to safer places, such as government bonds or cash. This move is driven by the desire to protect capital. In this context, "quality" usually means investments that have a lower chance of default and offer more stability. U.S. Treasury bonds, for example, are considered high-quality because they are backed by the U.S. government and are seen as very safe. A well-known example of flight to quality happened during the 2008 financial crisis. As banks collapsed and stock prices dropped, many investors rushed to buy U.S. Treasury bonds. This demand pushed Treasury prices up and their yields (interest rates) down. At the same time, riskier markets like corporate bonds and stocks became more volatile. Understanding this b...