Flight to quality,
Definition of Flight to quality:
For example, during a bear market, investors will often move their money out of equities and into government securities and money market funds. Another example is investors moving investments from high-risk countries with political unrest like Thailand or many thriving yet still not fully established markets like Uganda and Zambia to more stable markets of other countries, like Germany, Australia, and the United States. One indication of a flight to quality is a dramatic fall of the yield on government securities, which is a result of the increased demand for them.
Flight to quality occurs when investors in aggregate begin to shift their asset allocation away from riskier investments and into safer ones, for instance out of stocks and into bonds. Uncertainty in the financial or international markets usually causes this herd-like behavior. However, at other times, the move may be an instance of individual or smaller groups of investors cutting back on the more volatile investments for conservative ones.
Large-scale movements of capital from high-yield but risky investments to the ones which provide safety even if at low returns. These transfers usually follow a major corporate or bank failure, or other unsettling event or period.
How to use Flight to quality in a sentence?
- In extreme cases, the flight to quality may involve a shift to even lower-risk assets such as Treasuries, money markets, or cash.
- Flight to quality refers to the herd-like behavior of investors to shift out of risky assets during financial downturns or bear markets.
- This often occurs with a shift out of stocks and into bonds, where bonds are seen as relatively more safe and thus higher "quality" during rough economic patches.
Meaning of Flight to quality & Flight to quality Definition