Central Bank Bond Purchases and the Price of Safety

Jens Christensen, Nikola Mirkov and Xin Zhang

FRBSF Economic Letter, 2026, vol. 2026, issue 16, 5

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.

Keywords: central banking; government bonds (search for similar items in EconPapers)
Date: 2026
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