Report
Each crisis increases the scarcity of risk-free bonds: Implications for central banks
On the occasion of every crisis : Risk aversion rises and therefore so does demand for risk-free bonds; A growing number of issuers are considered risky; Central banks buy a growing quantity of risk-free bonds, which reduces the supply of such bonds available for investors . Risk-free bonds therefore become scarcer (more demand, less supply), sending the yields on these bonds to very low levels. Central banks’ normal response should therefore be to buy risky bonds and not risk-free bonds during crises. This would reduce the excess demand for risk-free bonds and facilitate the financing of the economy. Central banks’ determination to not put risky assets on their balance sheets is therefore destabilising.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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