What is a safe asset? Things to look for with a changing target

A safe asset yesterday may not be a safe asset tomorrow, yet the demand for safe assets could not be higher. We are in a risk-off environment, but investors would like some return even with safety.  

There are some measurable characteristics for a safe asset from the paper "The Fundamentals of a Safe Asset", but even here there has to be more thought on the meaning of safety:

• Low political risks - Extreme political risks are easy to spot, but the measures of political risks have become more uncertain. Safety has to be connected with policy uncertainty and future supply.
• Relative size of debt markets - The large debt markets usually attract large institutions that follow benchmarks and liquidity, but higher debt issuance leading to bigger market size has a tipping point. Too much supply can reduce safety.
• Past safe asset behavior - The inertia effect of past safety still is an attractive feature that will not be broken for many investors, but the connection between the past and future has been broken with the pandemic.
• Good real GDP growth - In a global recession, real GDP is declining across most countries. Safety may be related with which economies can get back on-line without structural damage. 
• Low public debt - As even large safe countries have seen their public debt explode, the concept of safety is changing. By this standard, Japan would not be considered safe, yet it has still played a safety role. The US should have diminished safety.
• Better current account - We have seen during this crisis a flight away from those countries with poor current accounts. The foreign reserves are now closely watched for strain and will have to be used to offset current account stress.   

Investors should create a safety checklist based on the above criteria and reorder their assessment of safe assets both domestically and internationally.