Last year, the NBR diversified its portfolio of instruments in which it invests its international reserves with the intention of targeting better yields, a move that also included expanding the list of bond issuers.
As a result, the NBR managed to derive net revenues worth 562m euros from the international reserves, 250m euros more than in 2005. According to NBR's annual report, 203m euros (81%) were derived through improvements in the profitability of the management activities. Only 47m euros came from the rising volume of reserves under management. During the course of last year, the NBR's international reserves climbed from 18.25 to 22.93bn euros.
In December, foreign currency reserves amounted to 21.3bn euros, while the gold reserve was valued at 1.62bn euros.
The NBR invests the largest part of its reserves in foreign bonds. However, the NBR may not place more than 10% of overall reserves in asset-backed bonds issued by private entities.
As a result of the diversification of instruments, the number of issuers considered as eligible for bond placements increased to 37. Under the NBR's criteria, the minimum rating for eligible issuers is "AA".
Around the same time last year, the NBR began investing in callable bonds issued by BIS and also in European covered bonds.
Simultaneously, last autumn the NBR launched a securities lending programme, through which bonds held in a custody account with the Federal Reserve Bank of New York can be used actively, which allows for some additional gains.
Therefore, while at the end of 2005, 6% of bonds held by the NBR were issued by governmental agencies and more than 93% by the government, the situation was significantly different in December 2006. The weight of government issued securities shrank by 66%, while covered bonds climbed to 16% in the bank's portfolio.
In December 2006, the NBR held investments worth 2.9bn euros in coupon securities issued by lending institutions, while in December 2005 the registered amount was zero. Placements in European bonds totalled 4.5bn euros, down 25% against the end of the previous year. The NBR last year gave up investments in coupon securities issued by the US Treasury and BIS. Placements in discount securities were also considerably reduced.
The NBR also modified the duration of portfolios last year in a bid to derive higher returns. Thus, amid a high interest rate risk for the euro, the NBR decided to reduce the euro portfolio duration by one month, from 10 months to 9 months. The duration of the dollar portfolio was kept at 1 year, while the duration of the pound sterling portfolio increased slightly to 3 months.
In the wake of this decision, the overall yields of international reserves stood at a level of 2.33% for euros and 4.49% for US dollars.
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