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. 


CEPR Policy Research