US Public Debt and Safe Asset Market Power

Jason Choi, Rishabh Kirpalani and Diego J. Perez

Journal of Political Economy, 2026, vol. 134, issue 5, 1506 - 1560

Abstract: The US government is the dominant supplier of global safe assets and faces a downward-sloping demand for its debt. We develop a model of the global economy in which US public debt generates special value for holders, endowing the US government with market power. We use variations in demand elasticities during high- and low-volatility regimes to distinguish this model from a price-taking benchmark and find that the data reject price-taking behavior in favor of the US government exploiting market power. We quantify the distortions, finding significant underprovision of safe assets, convenience yield markups, and welfare benefits for the United States.

Date: 2026
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