The number of risk-free financial assets is declining, according to a new study by the International Monetary Fund.

This could make the global financial system more unstable by threatening runs on sovereign debt and increasing the prevalence of herding behaviour by investors.

In recent decades, bonds issued by stable, rich countries were considered risk-free. However, the onset of the financial crisis in 2008 and the related sovereign debt crisis has “reinforced the notion that no asset can be viewed as truly safe” the study states.

As some formerly highly rated governments have had their credit ratings downgraded the supply of “safe” assets is falling and could be reduced by $9 billion globally in the coming years, or 16 per cent of the total, according to IMF staff estimates.

The supply of safe assets by the private sector has also declined, the fund’s economists say. The reasons for this include the failure of the “securitisation” process in the US which involved low quality mortgages being bundled and sold as high quality financial assets, many of which became worthless after the US property market crashed.

The contraction in the supply of safe assets has coincided with an increase in demand for such assets. That demand has been driven by “heightened uncertainty, regulatory reforms and crisis-related responses by central banks”.

The tightening of supply and the increase in demand could lead to greater volatility in global financial markets, the report concludes.

The study, which was made available yesterday, will be published in the fund’s bi-annual Global Financial Stability Report. That report, which is among the IMF’s flagship publications, will be released next week in advance of the spring meeting in Washington DC of the fund and its sister organisation, the World Bank.