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What Makes US Government Bonds Safe Assets?

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  • Zhiguo He
  • Arvind Krishnamurthy
  • Konstantin Milbradt

Abstract

US government bonds are widely considered to be the world’s safe store of value. US government bonds are a large fraction of safe asset portfolios, such as the porfolios of many central banks. The world demand for safe assets leads to low yields on US Treasury bonds. During periods of economic turmoil, such as the events of 2008, these yields fall even further. Moreover, despite the fact that US government debt has risen substantially relative to US GDP over the last decade, US government bond yields have not risen. What makes US government bonds “safe assets”? Our answer in short is that safe asset investors have nowhere else to go but invest in US government bonds.

Suggested Citation

  • Zhiguo He & Arvind Krishnamurthy & Konstantin Milbradt, 2016. "What Makes US Government Bonds Safe Assets?," NBER Working Papers 22017, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22017
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    References listed on IDEAS

    as
    1. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233-267.
    2. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-393, March.
    3. Ricardo J. Caballero & Arvind Krishnamurthy, 2009. "Global Imbalances and Financial Fragility," American Economic Review, American Economic Association, vol. 99(2), pages 584-588, May.
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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F0 - International Economics - - General
    • F3 - International Economics - - International Finance
    • G0 - Financial Economics - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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