Low bond yields luring global central banks into equities: survey


Low returns on top-rated government bonds are leading central banks to take on more risk in their reserve portfolios, with almost two-thirds more inclined to invest in equities compared with a year ago, a survey showed on Monday.

The annual survey of 60 central banks with a combined $6.7 trillion in reserves showed that their reserve managers were investing in markets and currencies they would not have considered until recently.

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In particular, it highlighted the growing acceptance of equities and emerging market currencies.

The survey, compiled by the Royal Bank of Scotland for Central Banking Publications, was carried out in February. The average holdings of the respondents was $112 billion.

Eight of the 60 reserve managers said their central bank was already investing in equities. Nearly a quarter of respondents said that equities either were a part of their reserve management or would be within the next five years.

"This represents a remarkable shift in official sector attitudes towards the asset class," the report said.

Taken together those central banks already invested in equities, or who gave a positive answer to the question, hold just over $2.5tn in total reserves.


Most respondents felt that the extraordinary policies of the U.S. Federal Reserve and the European Central Bank were having an impact on reserve management, with the rising risk of negative returns.

Yet in contrast to a year ago, when three-quarters of central bank reserve managers changed their strategy because of the euro zone debt crisis, 89 percent of central banks said the ECB's recent moves have restored reserve managers confidence in the euro.

Seventy percent of central bank reserve managers said they preferred A-grade government bonds this year yet slightly more than a quarter preferred top grade (AAA) government bonds. Twenty percent said they liked junk-rated government and corporate bonds.

Many have sought diversification into non-traditional currencies, emerging debt, gold and equities in response to low yields from traditional asset classes.

"Yield compression in major reserve currencies has led to a search for yields in different asset classes," one reserve manager was quoted as saying.

Emerging-market currencies, specifically the BRIC countries, have less investment, but already seven respondents responsible for a combined $1.26 trillion said they have invested in the renminbi. A further 13, just over a quarter of respondents, responsible for reserves worth just over $1.3 trillion, said they were considering investing in China's currency now.

One reserve manager said the yuan's inclusion in the special drawing right (SDR) would be a tipping point for them to invest in it.

Over half said they had no interest in BRIC currencies but a third said they could consider them over the next 5-10 years.

(Reporting by Sujata Rao and Philip Baillie; Editing by Hugh Lawson)