Quantitative Portfolio Strategy — Including US MBS in Global Treasury Portfolios

Abstract

For many years, central bank investment portfolios were traditionally limited to the most conservative instruments, and consisted largely, or even entirely, of short-term Treasury debt. The single question that remained was the setting of the target duration. Over the course of the last decade, there have been profound changes at official institutions around the world that have led to relaxations of these constraints in many cases. The emergence of the European Central Bank led to a re-evaluation of investment objectives for national central banks within the Eurozone, and the growing role of sovereign wealth funds as managers of national wealth has led to the inclusion of more aggressive assets and strategies within these portfolios.