The world is entering a paradox where the demand for safe government bonds is rising while the countries issuing them are falling apart.
April 26, 2026
Original Paper
Demographic Divergence and Safe Asset Scarcity
SSRN · 6647023
The Takeaway
Global population aging forces more people to seek out safe assets for their retirement. At the same time, the fiscal health of the nations providing those assets is rapidly eroding due to the costs of that same aging population. This creates a systemic trap where the world needs safety that no longer exists in large quantities. Investors are piling into government debt even as the underlying stability of those governments weakens. This mismatch threatens the core of the global financial system.
From the abstract
Population aging increases demand for safe assets while the supply of safe sovereign debtconcentrated in a few AAA-rated economies-grows only with the fiscal capacity of those same aging issuers. We bridge the demographic-current account literature with the Caballero-Farhi-Gourinchas safe asset framework using a 237-country panel (1990-2024). We find: (1) demographics depress safe sovereign yields (Z_1 ≈ 57.1, p < 0.01, 10-year bonds) but the effect concentrates among safe-rated issuers; (2) agi