Safe Asset Migration

Abstract

Post-crisis reforms changed the location of safe asset production. I propose a pair of tests to identify who issues safe assets and which safe asset issuers opportunistically time issuance when the price of safe assets is high. The Federal Home Loan Bank (FHLB) system is a newly crucial safe asset producer. FHLB debt issuance is an important determinant of the price of safe assets, and FHLB debt issuance responds to day-to-day fluctuations in the demand for safe assets — measured via the convenience yield. FHLBs issue more after an unexpected increase in the convenience yield and an unexpectedly large FHLB issue decreases the convenience yield. The FHLBs' ability to produce safe assets depends on their implicit government backing, a potential source of concern for future policymakers.