Flight to Safety or Flight from Carry?

We examine the distinction between safe-haven and funding currencies during market stress, focusing on how global institutional investors reallocate across currencies in crises. Using foreign exchange forward and sovereign bond flows from a major custodian bank, we find that although the Swiss franc, Japanese yen, and US dollar often attract inflows in turbulent periods, their roles differ. The US dollar drew inflows during the Global Financial Crisis and geopolitical events, while the 2024 carry unwind led to elevated inflows into the Japanese yen. We develop a panel regression framework to classify crises as flights to safety or from carry. Around Liberation Day, carry dynamics dominated safety. Distinguishing carry- from safety-driven flows became more important as US rates rose in late 2022.