A new survey shows that the central bank that manages foreign exchange reserves has begun to seek new, riskier investments to make up for the collapse in bond yields caused by the global pandemic.

The annual survey of 78 reserve asset managers showed that the total assets totaled US$640 million. In the past year, the decline in yields posed the biggest challenge to these investors. For many, it has driven the shift to new asset classes, including corporate bonds, emerging market bonds and stocks.

According to the latest data from the International Monetary Fund (IMF), reserve managers are usually one of the world’s most risk-averse investors, but because they manage more than $1.2 trillion in assets, they enjoy tremendous influence. The cash that the central bank accumulates to maintain currency stability or protect currency in times of crisis is usually stored in safe assets, such as short-term government debt.

However, surveys conducted by central bank publications show that the pressure of low returns forces some people to take greater risks to protect their capital. Last year, as central banks sharply reduced interest rates and launched huge bond purchase plans in response to the pandemic, global bond yields plummeted to record lows. Although yields have rebounded since then, they remain low by historical standards.

Just over half of the survey respondents said they are considering investing in new asset classes, while 44% of the respondents said they might add new currencies to their holdings. According to data from the International Monetary Fund (IMF), 59% of the world’s 12.7 trillion US dollars of foreign exchange reserves are held in US dollars, and most of the rest are held in euros, yen or pounds.

The survey also found that 42% of people are considering inflation-linked bonds, while 23% are considering increasing their gold holdings.

Another foreign exchange reserve manager from the Americas said that they increased their holdings of Chinese bonds, inflation-linked bonds and gold, adding: “We are always willing to look for opportunities to improve our foreign exchange reserves in terms of risk/return. s efficiency”.

Like many investors, the central bank has struggled to deal with the decline in bond yields over the past decade, which has led to a global “yield chasing” boosting high-risk assets. Once inflation is taken into account, many of the safest bonds provide negative returns, and negative nominal yields are also common in Japan and the Eurozone.

Bernard Altschuler, head of central banking at HSBC, said that the survey highlights the “capital preservation challenges faced by a large number of reserve managers, who mainly hold short-term high-rated government bonds. portfolio.”