The fund’s fixed-income investments returned
-1.9 percent in 2021. Financial markets were
buoyed by further expansionary monetary
policy, with policy rates held near or below
zero in the main markets and bond purchases
expanding central bank balance sheets.
Fixed-income investments accounted for 25.4 percent of the fund at the end of the year. These investments were primarily in bonds, and the remainder in short-term securities and bank deposits. The fixed-income market was again affected by the pandemic, with monetary policy geared mainly towards greater economic growth. Inflation was above central bank targets, leading to higher policy rates in many emerging markets and a debate in developed markets about whether the higher rate of inflation was temporary or more permanent.
Yields still low
The fund’s government bond holdings returned -3.2 percent in 2021 and accounted for 61.1 percent of its fixed-income investments at the end of the year. Government bonds in developed markets, which made up 58.6 percent of fixed-income investments, returned -3.1 percent.
US Treasuries returned -2.6 percent in local currency and 0.4 percent measured in the fund’s currency basket, and accounted for 24.8 percent of fixed-income investments,
Chart 11 The fund’s holdings in fixed-income markets.
Percentage of market value of bonds in the benchmark index.
Source: Bloomberg Barclays Indices, Norges Bank Investment Management
Source: Bloomberg Barclays Indices, Norges Bank Investment Management
Chart 11The fund’s holdings in fixed-income markets.
Percentage of market value of bonds in the benchmark index.
0.0
Government and government-related bonds Corporate bonds (incl. securitised bonds) Total
Chart 12 Price developments for bonds issued in dollars, euros, pounds and yen. Measured in local currencies.
Indexed total return 31.12.2020 = 100.
Source: Bloomberg Barclays Indices
Source: Bloomberg Barclays Indices
Chart 12Price developments for bonds issued in dollars, euros, pounds and yen. Measured in local currencies.
Indexed total return 31.12.2020 = 100.
90
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
Dollar Euro Pound Yen
making them the fund’s largest holding of government debt from a single issuer. Ten-year Treasury yields began the year at 0.9 percent before spiking to 1.7 percent in the first quarter. After dropping back by more than half a point during the spring and summer, yields picked up again towards the end of the year and ended 2021 at just over 1.5 percent. The Federal Reserve kept its policy rate close to zero and supplied liquidity to the market through bond purchases. A winding down of these purchases began in December and is expected to be completed in March 2022.
The dollar appreciated against most other currencies during the year.
Euro-denominated government bonds returned -3.9 percent in local currency and -7.9 percent in the fund’s currency basket, and made up 11.8 percent of fixed-income investments. The European Central Bank kept its deposit rate at -0.5 percent all year and continued to supply
liquidity, mostly through its Pandemic Emergency Purchase Programme. This contributed to calm fixed-income markets with limited fluctuations in risk premiums. The euro
depreciated against many other currencies during the year.
Japanese government bonds accounted for 11.7 percent of fixed-income holdings and returned 0.7 percent in local currency and -6.9 percent in the fund’s currency basket.
There were no major changes to either monetary policy or interest rates in Japan. The yen depreciated against most other currencies.
UK gilts accounted for 2.1 percent of the fund’s fixed-income investments and returned -6.0 percent in local currency and -4.0 percent in the fund’s currency basket. The Bank of England kept its policy rate at 0.1 percent until December, when it was raised by 15 basis points to 0.25 percent. The central bank also purchased gilts throughout the year to
Table 15 Return on the fund's largest bond holdings by currency in 2021.
Percent.
Currency Return in international
currency Return in
local currency Share of fixed-income investments
US dollar 1.8 -1.2 46.9
Euro -6.4 -2.3 27.6
Japanese yen -6.9 0.7 12.8
British pounds -1.0 -3.1 4.7
Singapore dollar -1.8 -2.8 4.6
Canadian dollar 1.7 -2.2 4.5
Australian dollar -5.6 -2.8 2.5
Swedish krona -7.0 -0.5 1.1
Swiss franc -2.3 -2.3 0.6
Danish krone -6.3 -2.3 0.5
support the economy. This quantitative easing will not be continued in 2022.
Government bonds in emerging-market currencies, which made up 2.5 percent of fixed-income investments, returned -3.9 percent. Interest rates were raised to curb inflationary pressures in many of these markets, especially in Latin America. Bonds from emerging-market issuers were removed from the fund’s benchmark index in 2019 but remain part of the investment universe and are limited to 5 percent of the fund’s fixed-income investments.
Inflation-linked bonds, all of which are issued by governments, returned 6.4 percent and amounted to 6.2 percent of fixed-income investments. Actual inflation was high, and inflation expectations increased, leading to much stronger returns on bonds of this type than on the equivalent nominal bonds.
The fund also held bonds from government-related institutions such as Kreditanstalt für Wiederaufbau, Canada Mortgage and Housing Corp, and the European Investment Bank. These returned -3.3 percent and accounted for 11.7 percent of fixed-income investments at the end of the year.
Corporate bonds returned 0.1 percent and represented 23.9 percent of fixed-income investments at the end of 2021.
There were only minor fluctuations in the credit premium during the year, and the stronger return was due mainly to a higher share of investments in US dollars than in the rest of the bond portfolio.
Securitised debt, consisting mainly of covered bonds denominated in euros, returned -4.6 percent and made up 6.1 percent of the fund’s fixed-income holdings.
Chart 13 Price developments in fixed-income sectors.
Measured in US dollars. Indexed total return 31.12.2020 = 100.
Source: Bloomberg Barclays Indices
Source: Bloomberg Barclays Indices
Chart 13Price developments in fixed-income sectors. Measured in US dollars. Indexed total return 31.12.2020 = 100.
90
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
Government bonds Government-related bonds Inflation-linked bonds Corporate bonds Securitised bonds
Chart 14 Price developments for 10-year government bonds issued in emerging market currencies. Measured in US dollars. Indexed total return 31.12.2020 = 100.
Source: Bloomberg Barclays Indices
Source: Bloomberg Barclays Indices
Chart 14Price developments for 10-year government bonds issued in emerging market currencies. Measured in US dollars. Indexed total return 31.12.2017 = 100.
80
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
Russia Mexico Indonesia Brazil India
Chart 15 10-year government bond yields. Percent.
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
USGermany Japan UKItaly Spain Source: Bloomberg
Chart 1510-year government bond yields. Percent.
Table 16 Return on the fund's fixed-income investments in 2021 by sector. International currency.
Percent.
Sector Return Share of fixed-
income investments1
Government bonds2 -3.2 61.1
Government-related bonds2 -3.3 11.7
Inflation-linked bonds2 6.4 6.2
Corporate bonds 0.1 23.9
Securitised bonds -4.6 6.1
1 Does not sum up to 100 percent because cash and derivatives are not included.
2 Governments may issue different types of bonds, and the fund’s investments in these bonds are grouped accordingly. Bonds issued by a country’s government in the country’s own currency are categorised as government bonds. Bonds issued by a country’s government in another country’s currency are government-related bonds. Inflation-linked bonds issued by governments are grouped with inflation-linked bonds.
Table 17 Sector composition of the fund's fixed-income investments.
Sector Millions of kroner 1 Percent
Government bonds 1,914,848 61.1
Government bonds 1,914,848 61.1
Government-related bonds 367,840 11.7
Bonds issued by federal agencies 155,965 5.0
Bonds issued by local authorities 131,218 4.2
Bonds issued by supranational bodies 70,640 2.3
Sovereign bonds 10,016 0.3
Inflation-linked bonds 195,879 6.2
Inflation-linked bonds 195,879 6.2
Corporate bonds 748,389 23.9
Bonds issued by industrial companies 354,885 11.3
Bonds issued by financial institutions 327,240 10.4
Bonds issued by utilities 66,264 2.1
Securitised bonds 191,948 6.1
Covered bonds 191,948 6.1
1 Does not sum up to total market value of the fixed-income investments because cash and derivatives are not included.
Table 18 The fund's largest bond holdings sorted by issuer as at 31 December 2021.
Millions of kroner.
Issuer Country Holding
Government of United States
of America US 877,936
Government of Japan Japan 370,519
Monetary Authority of Singapore Singapore 132,622
Government of Germany Germany 121,399
United Kingdom Government UK 93,596
Government of France France 74,825
Government of Italy Italy 63,741
Government of Canada Canada 55,754
Government of Australia Australia 45,988
Government of Spain Spain 45,547
Canada Mortgage & Housing
Corp Canada 41,476
Kreditanstalt fur Wiederaufbau Germany 26,729 Government of the Netherlands Netherlands 25,786
Government of Austria Austria 23,115
Bank of America Corp US 19,412
Goldman Sachs Group, Inc./The US 18,268
European Union International
organisations 17,875
Government of Sweden Sweden 17,607
Government of Belgium Belgium 17,508
Government of Ireland Ireland 17,276
Table 19 Currency composition of the fund's bond holdings.
Currency Millions of
kroner1 Percent
US dollar 1,469,043 46.9
Euro 866,527 27.6
Japanese yen 400,341 12.8
British pounds 148,592 4.7
Singapore dollar 145,597 4.6
Canadian dollar 141,304 4.5
Australian dollar 78,240 2.5
Swedish krona 35,724 1.1
Swiss franc 20,118 0.6
Danish krone 17,040 0.5
New Zealand dollar 15,585 0.5
South Korean won 13,571 0.4
Brazilian real 13,065 0.4
South African rand 7,907 0.3
Mexican peso 7,145 0.2
Colombian peso 6,824 0.2
Malaysian ringgit 6,583 0.2
Indian rupee 6,384 0.2
Indonesian rupiah 5,603 0.2
Israeli shekel 4,700 0.1
Chilean peso 2,850 0.1
Thai baht 2,348 0.1
1Does not sum up to total market value of the bond holdings because cash and derivatives are not included.
Chart 15 10-year government bond yields. Percent.
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
USGermany Japan UKItaly Spain Source: Bloomberg
Chart 1510-year government bond yields. Percent.
Table 16 Return on the fund's fixed-income investments in 2021 by sector. International currency.
Percent.
Sector Return Share of fixed-
income investments1
Government bonds2 -3.2 61.1
Government-related bonds2 -3.3 11.7
Inflation-linked bonds2 6.4 6.2
Corporate bonds 0.1 23.9
Securitised bonds -4.6 6.1
1 Does not sum up to 100 percent because cash and derivatives are not included.
2 Governments may issue different types of bonds, and the fund’s investments in these bonds are grouped accordingly. Bonds issued by a country’s government in the country’s own currency are categorised as government bonds. Bonds issued by a country’s government in another country’s currency are government-related bonds. Inflation-linked bonds issued by governments are grouped with inflation-linked bonds.
Table 17 Sector composition of the fund's fixed-income investments.
Sector Millions of kroner 1 Percent
Government bonds 1,914,848 61.1
Government bonds 1,914,848 61.1
Government-related bonds 367,840 11.7
Bonds issued by federal agencies 155,965 5.0
Bonds issued by local authorities 131,218 4.2
Bonds issued by supranational bodies 70,640 2.3
Sovereign bonds 10,016 0.3
Inflation-linked bonds 195,879 6.2
Inflation-linked bonds 195,879 6.2
Corporate bonds 748,389 23.9
Bonds issued by industrial companies 354,885 11.3
Bonds issued by financial institutions 327,240 10.4
Bonds issued by utilities 66,264 2.1
Securitised bonds 191,948 6.1
Covered bonds 191,948 6.1
1 Does not sum up to total market value of the fixed-income investments because cash and derivatives are not included.
Table 18 The fund's largest bond holdings sorted by issuer as at 31 December 2021.
Millions of kroner.
Issuer Country Holding
Government of United States
of America US 877,936
Government of Japan Japan 370,519
Monetary Authority of Singapore Singapore 132,622
Government of Germany Germany 121,399
United Kingdom Government UK 93,596
Government of France France 74,825
Government of Italy Italy 63,741
Government of Canada Canada 55,754
Government of Australia Australia 45,988
Government of Spain Spain 45,547
Canada Mortgage & Housing
Corp Canada 41,476
Kreditanstalt fur Wiederaufbau Germany 26,729 Government of the Netherlands Netherlands 25,786
Government of Austria Austria 23,115
Bank of America Corp US 19,412
Goldman Sachs Group, Inc./The US 18,268
European Union International
organisations 17,875
Government of Sweden Sweden 17,607
Government of Belgium Belgium 17,508
Government of Ireland Ireland 17,276
Table 19 Currency composition of the fund's bond holdings.
Currency Millions of
kroner1 Percent
US dollar 1,469,043 46.9
Euro 866,527 27.6
Japanese yen 400,341 12.8
British pounds 148,592 4.7
Singapore dollar 145,597 4.6
Canadian dollar 141,304 4.5
Australian dollar 78,240 2.5
Swedish krona 35,724 1.1
Swiss franc 20,118 0.6
Danish krone 17,040 0.5
New Zealand dollar 15,585 0.5
South Korean won 13,571 0.4
Brazilian real 13,065 0.4
South African rand 7,907 0.3
Mexican peso 7,145 0.2
Colombian peso 6,824 0.2
Malaysian ringgit 6,583 0.2
Indian rupee 6,384 0.2
Indonesian rupiah 5,603 0.2
Israeli shekel 4,700 0.1
Chilean peso 2,850 0.1
Thai baht 2,348 0.1
1Does not sum up to total market value of the bond holdings because cash and derivatives are not included.