Safe assets usually trade at a premium thanks to high credit quality and deep liquidity. To understand the role of credit quality for such premia, we examine Swiss government 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. We find that Swiss safety premia are large with long-lasting trends. They shifted upwards persistently following the euro launch and have been depressed recently by asset purchases of the European Central Bank.
Christensen, Jens H. E., and Nikola Mirkov. 2019. “The Safety Premium of Safe Assets,” Federal Reserve Bank of San Francisco Working Paper 2019-28. Available at https://doi.org/10.24148/wp2019-28