Safety and International Asset Positions (2025-)
This initiative explores how investors and financial intermediaries demand assets like home or foreign sovereign issuance, with associated domestic or foreign currency denominations. Country teams start with broad criteria for classifying assets used for safety-related purposes and examine how the demand for these assets differs across investor types, distinguishing between different regions or countries, currency preferences, and business models and constraints. By exploiting the inelastic nature of the supply of safe assets in financial markets, estimating investors’ demand elasticities, for instance, offers a framework for understanding the drivers of safe asset prices, as well as how they are affected by portfolio strategies of different investors, by associated constraints and frictions, and by changes in the demand along the global financial cycle. Research and analytics proceeds in in two parts. First, country teams will estimate sensitivities of (safe) asset demands to price changes and risk conditions, exploring roles of asset features, constraints that bind allocations, and differences across investor or intermediary types. Observed demand shifts reveal agents trade-offs between safety, liquidity, currency, and yield. Insights could inform observed or expected evolution of home bias patterns, for example around crises. Second, they will explore the relevance of estimated sensitivities and identified constraints.
