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The Safety Premium of Safe Assets

Author

Listed:
  • Jens H. E. Christensen
  • Nikola Mirkov

Abstract

Safe assets usually trade at a premium due to their high credit quality and deep liquidity. To understand the role of credit quality for such premia, we focus on Swiss Confederation bonds, which are extremely safe but not particularly liquid. We therefore refer to their premia as safety premia and quantify them using an arbitrage-free term structure model that accounts for time-varying premia in individual bond prices. The estimation results show that Swiss safety premia are large and exhibit long-lasting trends. Furthermore, our regression analysis suggests that they shifted upwards persistently following the launch of the euro but have been depressed in recent years by the asset purchases of the European Central Bank.

Suggested Citation

  • Jens H. E. Christensen & Nikola Mirkov, 2021. "The Safety Premium of Safe Assets," Working Paper Series 2019-28, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2019-28
    DOI: 10.24148/wp2019-28
    Note: The first version of this Working Paper was published on November 25, 2019.
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    Cited by:

    1. Martin M Andreasen & Jens H E Christensen & Simon Riddell, 2021. "The TIPS Liquidity Premium [Decomposing real and nominal yield curves]," Review of Finance, European Finance Association, vol. 25(6), pages 1639-1675.
    2. Timothy Mark Grant & Andrei-Dragos Popescu & Radu-Gabriel Stauceanu & Dan-Valeriu Voinea, 2020. "Acacia Protocol – A Proposal Of Structured Products For And Within The Decentralized Finance Ecosystem," Social Sciences and Education Research Review, Department of Communication, Journalism and Education Sciences, University of Craiova, vol. 7(1), pages 362-387, July.
    3. Christensen, Jens H.E. & Lopez, Jose A. & Mussche, Paul L., 2024. "International evidence on extending sovereign debt maturities," Journal of International Money and Finance, Elsevier, vol. 141(C).
    4. Klingler, Sven & Syrstad, Olav, 2025. "The SOFR discount," Journal of Financial Economics, Elsevier, vol. 164(C).
    5. Ragnar Juelsrud & Plamen Nenov & Fabienne Schneider & Olav Syrstad, 2025. "Money Talks: Transaction Costs, the Value of Convenience, and the Cross-Section of Safe Asset Returns," Staff Working Papers 25-34, Bank of Canada.

    More about this item

    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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