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The Discussion Note series provides analysis which may form relevant background for Norges Bank Investment Management’s investment strategy and advice to the asset owner. Any views expressed in the Discussion Notes are not necessarily held by our organisation. The series is written by employees, and is informed by our investment research and our experience as a large, long-term asset manager.
Discussion note 5 - 18 March 2011
Government debt has increased sharply in most developed countries in the wake of the financial crisis. The increased debt burden comes on top of an expected surge in debt due to demographics. Sharpened by the European peripheral debt crisis, this has led to increased focus on the risk associated with investing in government debt. This section reviews measures of this risk and discusses possible implications for investment returns.
Discussion notes 3 - 18 March 2011
The credit premium
In this section, we review the theory and empirical evidence of the credit premium. The credit premium is the excess return that an investor obtains for holding bonds issued by entities other than governments. A natural starting point for this objective is to discuss the so-called “credit spread puzzle” and different attempts to resolve it.
Discussion notes 2 - 18 March 2011
Prospective real returns in fixed income
In this section, we discuss the potential long-term real return implications of current yield levels in developed economies’ government bond markets. Treasury yields in the major economies are at or very close to their historical lows. Forward-looking measures of real yields based on inflation-indexed bonds or on surveys of long-term inflation expectations are depressed.
Discussion notes 1 - 18 March 2011
On risk premium variation
This section provides a brief introduction to modern financial economics and theories of discount factor variation