Abstract

This paper aggregates the quantity of safe assets by tracking the utility generated by safety services provided by the U.S. Treasury securities. Rather than recklessly sum up the quantity of outstanding securities, we impute the unique user cost of safety services for holding those safe assets in each duration interval and aggregate those safe assets with the weakly separable utility using the Divisia superlative indexing method. This Divisia safety service index reflects the Treasury debt valuation from a dynamic trading perspective, in which the holder trades safe assets as imperfect substitutes. We further provide evidence that the discrepancy between the Divisia and simple-sum aggregates captures the insurance service flows, with which the holder buys and sells safe assets at different durations to insure against idiosyncratic risks in liquidating non-safe assets.