Central clearing in government bond markets: keeping the "safe asset" safe?

Matteo Aquilina, Martin Scheicher and Andreas Schrimpf

No 92, BIS Bulletins from Bank for International Settlements

Abstract: Government bond markets – traditionally viewed as safe havens, at least in many advanced economies – have become focal points of market stress. Liquid and well-functioning markets for government debt critically rest on the intermediation capacity of dealers, which often form part of large banking groups. This capacity has been pressured by both the trajectory of government debt, which has been on an upward trend since the Great Financial Crisis (GFC), and the growth of leveraged strategies by investors that lead to one-sided markets during stress episodes (Schrimpf et al, 2020). Hence, the safe asset typically continues to be “safe” in terms of credit risk but faces mounting concerns about the ease of buying and selling it in a stressed market environment.

Pages: 8 pages
Date: 2024-09-19
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