Global or Regional Safe Assets: Evidence from Bond Substitution Patterns

Tsvetelina Nenova

No 1254, BIS Working Papers from Bank for International Settlements

Abstract: This paper provides novel empirical evidence on portfolio rebalancing in international bond markets through the prism of investors' demand for bonds. Using a granular dataset of global government and corporate bond holdings by mutual funds domiciled in the world's two largest currency areas, I estimate heterogeneous and time varying demand elasticities for bonds. Safe assets such as US Treasuries or German Bunds face especially inelastic demand from investment funds compared to riskier bonds. But spillovers from these safe assets to global bond markets are strikingly different. Funds substitute US Treasuries with global bonds, including risky corporate and emerging market bonds, whereas German Bunds are primarily substitutable within a narrow set of euro area safe government bonds. Substitutability deteriorates in times of stress, impairing the transmission of monetary policy.

Keywords: international finance; portfolio choice; safe assets (search for similar items in EconPapers)
JEL-codes: F30 G11 G15 (search for similar items in EconPapers)
Date: 2025-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1254.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1254.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1254

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().