##ncing will also be important going forward, but we need to further deepen our understanding of time - varying expected returns and risks. the other main topic of today ’ s conference – well - functioning markets – is also of particular interest to us. without well - functioning markets, the massive reallocation of wealth from oil in the ground to a claim on a small share of future global output would not have been feasible. well - functioning financial markets are also, through the allocation of real resources, important for sustained growth at a global level. the financial crisis displayed great challenges related to how the markets function. we saw mispricing of risk, and the difficulties of managing financial imbalances. other problems were related to liquidity. trading of fixed income instruments take place at the desks of the large investment banks. the problems of these banks in september 2008 implied a literally closing of the main fixed income markets. the financial crisis and subsequent great recession have dramatically increased interest among academics in research of asset pricing with frictions. questions of regulation, segmented markets, liquidity and principal / agent problems represent central issues for a fund manager, and at the same time topics on the forefront of academic debate. we need to understand how these issues affect our investment possibilities, given the fund ’ s strategy and characteristics. i have pointed to some of the links between the management of the fund and the two main areas discussed in this conference – time - varying risk premiums and well functioning markets. the questions on the forefront of academic debate – and their potential answers – are not just of theoretical interest, but of immediate practical relevance to us. the fund will be a significant contributor to norwegian government budgets for decades, maybe centuries to come. the strategy of the fund will need continuous development. we hope our annual research conferences will provide valuable inputs to this process. i would like to thank the organizers for making this conference possible, and not least, the speakers for their very valuable contributions. also, thanks to all the participants – i hope to see you again for the conference next year! bis central bankers ’ speeches

assets, in an environment where so few outside assets exist. 2 as noted already, cgs yields have fallen well beyond levels that could have been induced by the liquidity regulations. this is evidenced by the fact that banks own so few of them. for banks, the spreads to interbank rates at which many cgs currently trade implies that see rba ( 2011 ), “ the rba committed liquidity facility ”, media release no 2011 - 25, 16 november, and debelle g ( 2011 ), “ the committed liquidity facility ”, speech to the apra basel iii implementation workshop, sydney, 23 november. outside assets are those not issued by the banking system. bis central bankers ’ speeches settlement balances at the reserve bank would be a higher yielding investment and at least as free of risk. similarly, the large negative spread to swap is confirmatory evidence of the shortage of cgs relative to the strong demand for the asset. 3 recent trends within the kangaroo bond market also illustrate that broader market dynamics have had a greater influence on the relative prices of debt securities than prospective regulatory developments. when apra was making its initial assessment of what securities would qualify as liquid assets for the basel iii framework, there was concern expressed in some quarters about the consequences for the kangaroo market if supranational and foreign agency debt were not considered level 1 assets. seen from the perspective of today, it is apparent that these concerns were overstated. as aaa rated kangaroo debt will be eligible for the clf, it is only the payment of the fee, or liquidity premium, that distinguishes these securities from cgs and semis for regulatory purposes. the subsequent repricing of much kangaroo debt far exceeds the size of the fee. in many cases, this repricing has rather been due to altered perceptions of their creditworthiness by ratings agencies and market participants. more generally, great store is often placed in terms of whether an asset is eligible for repo with the central bank or not. reliance on repo eligibility does not strike me as the cornerstone of a resilient issuance program. but in recent months, we have seen a number of non repo - eligible kangaroo issues come to market, including from some first - time issuers. this indicates that there are other more important elements that determine investor demand than being considered a level 1 asset or repo eligibility. in addition to the issue of which securities can be held as liquid assets, the other dimension to liquidity