sold. 17 another argument sometimes put forward in favour of large bond holdings is that the central bank ’ s purchases would increase the supply of safe assets in the economy, and that there is otherwise a shortage of such assets. 18 the riksbank ’ s bond purchases result in that government bonds with a specific maturity disappear from the market and are replaced by riksbank certificates with a maturity of one week. 19 the riksbank then takes over some of the maturity transformation that the market otherwise tries to achieve on its own, and helps to reduce the interest rate risk in the outstanding portfolio of government securities. this argument isn ’ t particularly convincing either. if it is considered important to have short maturity on the national debt in normal times, this should be dealt with when the government bonds are issued, and it is then a question for the national debt office. furthermore, the conversion from government securities to riksbank assets does not seem to increase the supply of safe assets in sweden ; the interest rate on ( short - term ) government securities is lower than the repo rate which means that the market price of government bonds is higher than the price of riksbank certificates with the same maturity. this pricing indicates, if anything, that the market prefers to hold government bonds rather than central bank reserves and hence that the riksbank ’ s bond purchases are reducing the supply of the safest assets. another indication of this is that the term premiums on government bonds have been very low, and probably negative, in recent years. 20 this suggests that government bonds with long maturities are not being priced with risk premiums in relation to riksbank certificates or government securities with short maturities. 7 i have now discussed arguments that could indicate that the riksbank should continue to maintain a large portfolio even in the future, and i don ’ t consider these arguments to be particularly strong. but does this mean that the size of the balance sheet has no significance or are there strong arguments indicating that the riksbank ’ s balance sheet should be small? arguments against substantial bond holdings in normal times maintaining a large balance sheet can be associated with risks, but the nature of these risks depends both on the assets held by the central banks and how these are funded on the liability side. the risks may relate to the central bank ’ s financial position and ability to conduct monetary policy and simultaneously fund its own operations, as well as to its reputation and possibility to safeguard its independence in monetary policy issues. plosser

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