The demand for safe assets

Filippo Cavaleri, Angelo Ranaldo and Enzo Rossi

No 2025-03, Working Papers from Swiss National Bank

Abstract: This paper examines how heterogeneity in investment horizons determines the demand for safe assets, bidding strategies in auctions, and post-auction price dynamics. We model a uniform-price double auction with resale where long-term investors hold assets to maturity, while dealer banks distribute the asset in secondary markets. Pure private (common) values emerge when only long-term investors (dealers) participate. Using unique data on Swiss Treasury bond auctions revealing bidders' identities, our empirical findings support key predictions: (1) substantial heterogeneity in demand schedules, with steeper demand curves for dealer banks; (2) dealer banks' demand becomes steeper with increased demand risk and bid dispersion; and (3) demand elasticity positively predicts post-auction returns.

Keywords: Auction; Asset demand; Safe asset; Private and common values; Government bonds (search for similar items in EconPapers)
JEL-codes: D44 D82 G12 G14 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2025
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Related works:
Working Paper: The Demand for Safe Assets (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2025-03

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