Highly rated bonds are at the heart of Wall Street’s business. Few transactions would be possible without the collateral and leveraging possibilities that highly liquid money-like instruments offer. With central banks vacuuming up the best debt issues, from where are financial institutions sourcing their bonds? Economists Carol Bertaut, Alexandra Tabova and Vivian Wong of the Federal Reserve Board offer some challenging insights into the “safe” securities that have replaced the mortgage bonds that triggered the 2008 crisis. getAbstract recommends this dense but intriguing analysis of the changing composition of US investors’ bond portfolios.
In this summary, you will learn
- How changes in the supply of government bonds drive financial firms to create “safe” assets;
- Why several OECD nations, including Australia and Canada, are issuing such assets denominated in US dollars; and
- Whether foreign issuers are appropriately hedging against currency risks.
About the Authors
Carol Bertaut, Alexandra Tabova and Vivian Wong are economists at the Board of Governors of the Federal Reserve System.