The Safe-Debt Laffer Curve

I study the long-run effects of public debt on net safe-asset supply. I construct a quarterly measure of marginal Treasury absorption cost that includes the premium on new debt and the cost of repricing the outstanding stock. Combining cash-Treasury and real-duration premia with estimates of their responses to supply, I estimate that this cost rose from 78 to 204 basis points between 2015Q1 and 2026Q2. In the model, absorption payments increase high-net-worth recipients’ demand for safe assets when consumption out of their capitalized value falls short of the payments themselves. As debt expands relative to financial capacity, this induced demand can exceed new issuance, producing a safe-debt Laffer curve. In an illustrative household calculation, the estimated cost increase reduces the marginal net contribution of issuance from 69 to 18 cents per dollar.