Portfolio management

The Portfolio Management unit manages bonds with longer maturities. Bonds may be sold or lent out for short-term liquidity operations, in which case they do not constitute a part of the liquidity buffer. Additionally, the Bank receives bonds as collateral from swap counterparties. The market value of the bond portfolios amounted to EUR 6,264 million at the end of 2015, and the net of bonds received and given as collateral was EUR 160 million, for a total of EUR 6,424 million.

The bond portfolios contain both interest rate risks and credit spread risks directly affecting NIB, while securities movements for collateral purposes do not affect NIB’s income. The bond portfolios include bonds both held at amortised cost and fair value and are with floating- and fixed-rate coupons. The instrument distribution of the EUR 6,264 million bond portfolio can be seen here:

Bond instruments in 2015

NIB_2015graphs_pie_Bond instruments in 2015

 

The three most liquid and creditworthy asset classes—sovereign and sovereign guaranteed, covered bonds, and public sector—have an average rating above Aa1/AA+ and comprised 81% of the portfolio. “Financials” refers to senior unsecured debt of banks, and asset backed securities (ABS) contained only residential mortgage-backed securities. The lowest rating of financials and ABS is comparable to A3/A-.

The counterparty and market risk frameworks set limits applicable to Treasury operations. At the end of 2015, the interest rate risk for all portfolios was calculated to be equivalent to EUR 883,000. The securities in the portfolio are denominated in EUR, USD and Nordic currencies, with EUR being the dominating currency. During 2015, the currency diversification was achieved by decreasing the allocation to EUR and increasing investments in USD and DKK. Another development was that investing in liquid green bonds commenced, and the green share of the overall portfolio is expected to increase going forward.

In 2015, the Portfolio Management operations contributed EUR 70.1 million in net interest income earnings and EUR 7.2 million in losses from valuations of derivatives and bonds. The negative effect on bond valuations is caused by widening credit spreads in the latter half of the year. The change in value of bonds that were classified at amortised cost was EUR -35.4 million. Most of that effect comes from the price of higher coupon bonds moving closer to par with the shorter time to maturity.