What Makes US Government Bonds Safe Assets?
US government bonds are widely considered to be the world’s safe store of value. US government bonds are a large fraction of safe asset portfolios, such as the porfolios of many central banks. The world demand for safe assets leads to low yields on US Treasury bonds. During periods of economic turmoil, such as the events of 2008, these yields fall even further. Moreover, despite the fact that US government debt has risen substantially relative to US GDP over the last decade, US government bond yields have not risen. What makes US government bonds “safe assets”? Our answer in short is that safe asset investors have nowhere else to go but invest in US government bonds.
We thank Manuel Amador and Jonathan Wallen for comments, and Pierre-Olivier Gourinchas for his discussion of our work at the 2015 NBER Summer Institute. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I am doing a research project on the effect of central bank liquidity facilities. The project is being funded by Goldman Sachs.
Zhiguo He & Arvind Krishnamurthy & Konstantin Milbradt, 2016. "What Makes US Government Bonds Safe Assets?," American Economic Review, vol 106(5), pages 519-523. citation courtesy of