Sovereign Wealth Funds Sift for Value in a Zero- Interest-Rate World

November 07, 2014 by Simon Meads, Loch Adamson

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The Bank of International Settlements in Basel, Switzerland Before the 2008–’09 financial crisis, bond markets were kind to sovereign wealth funds, with yields on benchmark government credits topping 5 percent or more. Those days are gone. Now the unprecedented collapse in yields on high-grade government bonds is forcing state-owned investors to change strategies and tactics. As they sift through credit markets, picking over opportunities for higher yields or capital gains that might entail greater risk, some sovereign funds have moved light years away from their once-staid approach to fixed income. "We’re past the good part of the credit cycle," says Liew Tzu Mi, deputy head of fixed income at Singaporean sovereign wealth fund GIC. "We do not see a lot of value in the broad credit market given how much spreads have tightened." Pricey government debt keeps flirting with record-low yields. The interest on ten-year U.S. Treasuries was…

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