NBIM Proposes Major Changes to SWF Bond Portfolio

Yngve Slyngstad

Norges Bank penned a letter to Norway’s Ministry of Finance, “Letter to the Ministry of Finance, 1 September 2017”.

The letter essentially recommended four major changes to the Norway Government Pension Fund Global’s (GPFG) fixed income portfolio.

Four Recommendations.

1. The Bank recommends that a specific currency list is drawn up for the bond index. The currency list must ensure that the index is liquid and investable for the fund. The currency list should consist of US dollars, euros and British pounds.

2. The Bank’s recommendation is that the benchmark index for bonds should comprise nominal government bonds issued in currencies on a currency list.

3. The maturity of the bond index should be managed. We recommend setting an upper limit for maturity of around ten years for bonds included in the index. A shorter maturity will help reduce uncertainty about the fund’s volatility.

4. A portfolio equal to the current bond index is sufficiently liquid given the fund’s liquidity needs. The Bank’s recommendations in this letter may improve liquidity further, and so we believe that there is no need to amend the management guidelines in this area.

Source: Letter to Ministry of Finance, 1 September 2017.

What This Means?

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