Maurizio Michael Habib, Livio Stracca, Fabrizio Venditti, 02 March 2020

What makes government bonds a safe asset? This column shows that the low political and institutional risk of issuing countries and the relative size of the debt market foster a safe asset status, with the latter factor – size – reflecting the special role of the US in providing a large, deep and liquid market for government bonds. Inertia – whether the bond behaved as a safe asset in the past – is also important. Notably, the drivers of safe asset status are heterogeneous within advanced and emerging markets, with external sustainability in particular being relevant for the latter group of countries. 

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