CNB adds corporate bonds to its reserve portfolio and changes its MBS management approach
The Bank Board of the Czech National Bank (CNB) has decided to make changes to the management of the international reserves. Investments in US mortgage-backed securities (MBS) are now managed by an internal team. Investment-grade corporate bonds have been added to the reserves. The CNB makes both these investments through exchange-traded funds (ETFs) and derivatives linked to the relevant bond indices. The key inputs supporting the Bank Board’s decision included the results of the Analysis of possible investment in other asset classes, the second part (pdf, 3 MB) of which the CNB is publishing today.
The CNB had been using external managers to manage its MBS portfolios since the end of 2019. These portfolios accounted for less than 10% of the size of the USD bond portfolio. Their overall results fell short of expectations: the portfolios underperformed the benchmark and net-of-fee returns were unsatisfactory. Moreover, the performance of the portfolios was negatively affected by a sharp rise in interest rates in 2022 and 2023. In such an environment, MBS lose value more sharply than conventional bonds.
Nevertheless, the CNB regards MBS as instruments that can generate higher returns than US Treasuries in the long run. Historically, the difference has ranged between 30 and 75 basis points. The Bank Board has therefore decided that, instead of terminating the exposure entirely, it will allow it to be managed internally through ETFs and derivatives. This approach will provide greater investment flexibility, enable the CNB to respond swiftly to market developments and also reduce the central bank’s costs. After the CNB terminated the external management of its equity portfolio in 2023, the MBS portfolio was the last one managed externally.
Foreign corporate bonds: a new asset class in the international reserves
The main reason for including corporate bonds in the international reserves is to increase the long-term expected return on the reserves and further diversify the portfolio. Investment-grade corporate bonds are a common component of the portfolios of the world’s central banks – almost 40% of them hold such bonds. Data for 1994–2024 show that they generated annual returns that were 75 to 135 basis points higher on average than those on US Treasuries. Moreover, the Sharpe ratio – the return per unit of risk taken – is more favourable for corporate bonds than, say, government bonds.
In line with its conservative approach, the CNB only includes investments in diversified bond indices in its portfolio. These investments are made through ETFs and derivatives rather than through direct purchases of bonds issued by individual issuers. The probability of default of an investment-grade issuer is very low. Even if default were to occur, the impact on the overall portfolio return would be only limited if the investment were made through a broad bond index.
The CNB will not set a target exposure for this asset class; it will only establish limits for portfolio management. Taken together, investments in corporate bonds and MBS will not exceed 10% of the relevant portfolio.
“We have deliberately diversified the structure of the international reserves in recent years. We are gradually increasing our gold reserves and are progressing towards 100 tonnes, while the share of equities in the reserves continues to rise towards our 30% target. This strategy is based on the conviction that, over the long term, the reserves must generate returns while remaining resilient under different market conditions. Corporate bonds are a natural next step: they offer a consistent excess return over government bonds while preserving a conservative approach. We invest solely in the investment-grade segment and only through index-based instruments. At the same time, we are changing the way we manage MBS. Six years of experience with external mandates did not deliver the expected results, and the transition to internal management through ETFs and derivatives will give us the flexibility we need while reducing costs,” said CNB Bank Board member Jan Kubíček.
The CNB Bank Board approved the changes to the management of the international reserves at its meeting on 23 April 2026. Most of the changes were implemented during 2026 Q3. The CNB will continue to provide information on the management of the reserves in regular quarterly reports.
The preparation of the Analysis of possible investment in other asset classes was commissioned by the CNB Bank Board in early 2025 at the proposal of CNB Governor Aleš Michl. Following a discussion of the results in November 2025, the CNB published the first part (pdf, 2 MB) of the analysis and created a test portfolio of digital assets. However, this portfolio is not part of the international reserves. The CNB is publishing the second part of the analysis together with the international reserves report for 2026 Q3.
The CNB has one of the largest international reserves portfolios in the world relative to GDP. In 2023, the Bank Board approved a gradual change in the composition of the reserves, consisting mainly in increasing the share of equities and purchasing gold. In 2023–2025, while the new strategy was being implemented, the CNB generated a cumulative profit of CZK 133 billion. In 2025, the return on the reserves reached a record high of 10.3%, equivalent to CZK 253 billion.
Jakub Holas
Director of the CNB Communications Division