2013-03-19
Norwegian Government Pension Fund sells large quantities of gilts
The world’s largest sovereign wealth fund has dramatically altered its debt holdings away from UK and French government bond holdings.
Norges Bank Investment Management (NBIM) manages the Norwegian Government Pension Fund Global, and is one of the most closely watched portfolios in the world.
The oil fund is undergoing a significant portfolio shift, moving equity and bond holdings away from Europe towards emerging markets. Following the adoption of new unconventional monetary policies such as quantitative easing, currency devaluations and low yields have reduced the continuing appeal of European government issued debt.
This has sparked the need for the fund to drastically alter its bond holdings, which account for about 40 per cent of the fund’s value. Their primary motivation is to maintain a long-term steady government revenue stream. However, the current low yields of government debt also suggest low yields for many years to come.
Some countries’ short-term government bond yields turned negative at certain points last year, with Switzerland, Denmark and Germany all having negative yields on two-year bonds.
Despite the temptation to avoid the Eurozone crisis on principal, Norwegian government officials have justified the move away from Europe in an attempt to make its holdings more representative of the distribution of gross domestic product globally. It aims to weight its bond portfolio away from debt-heavy countries and instead favour holdings in emerging markets.
The fund will look to add to the bond holdings in local currencies from countries such as China, Russia, Hungary and the Philippines, which it first introduced to its portfolio for the first time in 2012. Nonetheless, significant increases to its holdings in the US, Japan and Germany have also been made; and these are now account for its three biggest government bond investments.
