The safety premium of safe assets

Jens Christensen and Nikola Mirkov

No 2021-02, Working Papers from Swiss National Bank

Abstract: Safe assets usually trade at a premium due to their high credit quality and deep liquidity. To understand the role of credit quality for such premia, we focus on Swiss Confederation bonds, which are extremely safe but not particularly liquid. We therefore refer to their premia as safety premia and quantify them using an arbitrage-free term structure model that accounts for time-varying premia in individual bond prices. The estimation results show that Swiss safety premia are large and exhibit long-lasting trends. Furthermore, our regression analysis suggests that they shifted upwards persistently following the launch of the euro but have been depressed in recent years by the asset purchases of the European Central Bank.

Keywords: Affine arbitrage-free term structure model; bond-specific risk premia; euro launch; negative interest rates (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 F34 G12 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Safety Premium of Safe Assets (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2021-02

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