Historical archive

Changes to the fixed-income benchmark

Historical archive

Published under: Solberg's Government

Publisher: Ministry of Finance

Emerging market government bonds and emerging market corporate bonds are to be omitted from the fixed-income benchmark for the Government Pension Fund Global (GPFG). The Fund may still be invested in such bonds as part of Norges Bank’s active management.

– Along with certain adjustments to the country weightings for government bonds, the changes proposed will facilitate lower transaction costs in the management of the Fund, says Siv Jensen, Minister of Finance.

In 2017, it was decided to increase the equity share of the GPFG to 70 percent. In view of this decision, the Ministry of Finance initiated a review of the fixed-income framework and benchmark for the Fund. Advice and assessments have been obtained from both Norges Bank and an expert group.

In the report to Parliament, the Ministry of Finance proposes to omit emerging market government bonds and emerging market corporate bonds from the benchmark for the GPFG. The proposal is not based on assessments of individual countries or issuers, but is according to the country classification of the index provider Bloomberg. The following government bond issuers are at present classified as emerging markets and will be removed from the benchmark index: Chile, the Czech Republic, Hungary, Israel, Malaysia, Mexico, Poland, Russia, South-Korea and Thailand.

Norges Bank may still invest the GPFG in emerging market government and corporate bonds, but subject to an upper limit set by the Ministry. The cap is proposed at 5 percent of the fixed-income portfolio. Expanded reporting requirements will also be introduced.  The specific changes to provisions in the management mandate for the GPFG and a plan for entry into force, will be prepared in consultation with Norges Bank, after the Storting’s deliberation of the white paper.

As recommended by Norges Bank, the composition of the government part of the fixed-income benchmark is still to be based on GDP weights, although subject to certain technical modifications. The Ministry of Finance also proposes that corporate bonds shall continue to account for 30 percent of the fixed-income benchmark index, as at present. The benchmark bond maturity shall continue to reflect market developments, in line with the advice from the expert group.

– The decision to increase the equity share in the GPFG was based, inter alia, on an assessment that the capacity to take on risk in of the Fund has increased over time. The increase in the equity share does not in itself call for material changes to the fixed-income benchmark, says Siv Jensen, Minister of Finance.