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Financial Crises and Safe Assets

In: Capital Wars

Author

Listed:
  • Michael J. Howell

    (CrossBorder Capital Ltd.)

Abstract

‘Safe’ assets are defined. The structural shortage of safe assets is evidenced. This shortage forces down Treasury term premia and so distorts government bond yields. Greater demand for safe assets comes from a combination of the secular growth of CICPs (corporate and institutional cash pools); tighter regulation and the liquidity shortages that result from Central Bank quantitative tightening. The excess demand for safe assets spillsover into higher quality US credit markets, allowing an increase in new issuance. These proceeds find their way back to Wall Street through share buy-backs, highlighting yet another liquidity transmission channel. A solution to the shortage is to issuance more longer duration bonds, even 50-year and 100-year tenors.

Suggested Citation

  • Michael J. Howell, 2020. "Financial Crises and Safe Assets," Springer Books, in: Capital Wars, chapter 0, pages 233-247, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-39288-8_11
    DOI: 10.1007/978-3-030-39288-8_11
    as

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