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The demand for safe assets

Author

Listed:
  • Filippo Cavaleri
  • Angelo Ranaldo
  • Enzo Rossi

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.

Suggested Citation

  • Filippo Cavaleri & Angelo Ranaldo & Enzo Rossi, 2025. "The demand for safe assets," Working Papers 2025-03, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2025-03
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2025/working_paper_2025_03
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    Keywords

    Auction; Asset demand; Safe asset; Private and common values; Government bonds;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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