Safe-haven assets such as UK gilts and US Treasuries will remain in demand, even as their yields dwindle to wafer-thin levels, as concerns rumble on about the solvency of southern European nations and due to the lack of alternative choices, according to HSBC Private Bank.

“We think that US Treasuries, together with [the dollar], remain the ultimate safe haven in case of a negative spiral of confidence in Europe,” according to a note by Willem Sels, UK head of investment strategy at the firm.

His remarks were prompted by the fact that last week’s auction of German 10-year government bonds (“bunds”), which was not fully covered and branded a disaster by some commentators, has shaken confidence in this traditionally “safe” market.

Despite low yields on the safest bonds, the private bank is resisting the temptation to go into slightly riskier assets in search for returns, focusing on maturities in the five- to seven-year sector of the yield curve.

“We think the outlook for safe haven bonds is now mostly determined by global risk appetite, and the outlook for the eurozone periphery in particular. As Italian and even French credit spreads continue to widen, this creates a very negative environment for banks and credit markets, and we believe that global risk appetite is likely to deteriorate further,” Sels said in his note.

The private bank said there is some longer-term risk to German bonds compared with UK and US bonds but the current selloff to German debt “is unlikely to be sustained for long”.