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Central Bank Bond Purchases and the Price of Safety

Author

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  • Jens H. E. Christensen
  • Nikola Mirkov
  • Xin Zhang

Abstract

Central banks purchase bonds and other securities with their own reserves. In doing so, they expand the supply of safe assets in the economy, which should lower the premium investors are willing to pay for safety. Analysis confirms that bond purchases by the European Central Bank in 2015–2021 lowered safety premiums for investors, partially offsetting declines in bond yields as much as 30 basis points. The results suggest that such transactions essentially reduce a central bank’s effectiveness in using asset purchases to lower interest rates in safe bond markets.

Suggested Citation

  • Jens H. E. Christensen & Nikola Mirkov & Xin Zhang, 2026. "Central Bank Bond Purchases and the Price of Safety," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2026(16), pages 1-5, June.
    • Handle: RePEc:fip:fedfel:103412
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    References listed on IDEAS

    as
    1. Jens H. E. Christensen & Nikola Mirkov, 2021. "Exploring the Safety Premium of Safe Assets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2021(13), pages 01-05, May.
    2. Christensen, Jens H.E. & Mirkov, Nikola N. & Zhang, Xin, 2025. "Quantitative easing and the supply of safe assets: Evidence from international bond safety premia," Journal of International Economics, Elsevier, vol. 157(C).
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