Quantitative Easing and Safe Asset Scarcity: Evidence from International Bond Safety Premia

Abstract

Through large-scale asset purchases, widely known as quantitative easing (QE), central banks around the world have reduced the available supply of safe assets. We examine the effects of the European Central Bank’s asset purchases in the 2015-2021 period on an international panel of bond safety premia from four highly rated countries: Denmark, Germany, Sweden, and Switzerland. We find statistically significant negative effects for all four countries. This points to a novel and important international spillover channel of QE programs to bond safety premia that operates via changes in the perceived relative scarcity of safe assets across international bond markets.