Latvijas Banka manages its financial assets and gold in accordance with the investment management guidelines set by the Council of Latvijas Banka, observing the principles of prudent management. Investments are managed in such a way as to ensure the long-term effects of:

  • capital preservation;
  • liquidity;
  • income generation.

In addition, the management of investments takes into account the principles of sustainability and the Agreement on Net Financial Assets of the Eurosystem central banks.

Investment composition

Diversification is one of the primary strategies used in investment management. Latvijas Banka mostly invests its financial assets in:

  • debt securities issued by the governments of the US and European countries, their agencies, or international institutions;
  • asset-backed securities;
  • securities in the emerging markets government securities index;
  • securities in the global investment grade fixed income securities index;
  • equities issued by companies in developed and emerging markets equity indexes;
  • high-quality debt securities issued by corporate issuers;

The total value of Latvijas Banka's investment portfolios at the end of 2025 was EUR 6.62 billion, which was EUR 0.5 billion more than at the end of 2024.

Chart 1. Investment composition (31 December 2025; %)

 

Investment management framework

Investments are managed both by the specialists of Latvijas Banka and external managers. Investments are made in three main asset classes: fixed income securities, equities, and gold.

Investment in fixed-income securities

The bulk of investment in fixed-income securities is managed by the experts of Latvijas Banka.

Table 1. The benchmark of the 1–10 year fixed-income securities portfolio managed in-house

 

Term structure of government securities index

Currency structure

US

1–3 years

55%

Euro area

1–10 years

21%

United Kingdom

1–10 years

14%

Canada

1–3 years

10%

Investments in investment-grade fixed-income government securities market countries are made through ETFs. In 2024, the benchmark portfolio of these investments was changed, redirecting it towards more sustainable issuers with a higher rating according to ESG criteria and green bond issuances.

To manage investments in fixed-income securities, Latvijas Banka also relies on the services of seven external managers. They manage a portion of Latvijas Banka's financial assets in compliance with the guidelines issued by the Council of Latvijas Banka:

For all investments in fixed income securities, except for the investment grade global fixed income securities portfolio, the currency risk is hedged against the euro.

Investment in equities

Investment in equities mostly comprises of the portfolio of equities from developed markets. It is managed by an external manager and is subject to the Sustainability Strategy of Latvijas Banka. The targets of this equity portfolio include (see the report):

  • to support the achievement of carbon neutrality by 2050 at the latest;
  • to adjust the portfolio to the provisions of the Paris Agreement;
  • to avoid environmental pollution, conserve biodiversity, and consider ESG factors.

Investments in emerging market equities are managed against the respective equity index and are made using the ETF.

Investment in gold

Latvijas Banka's gold is stored in the Bank of England.

Management of ECB reserves

Under the Statute of the ESCB and of the ECB, Latvijas Banka has transferred a small share of its financial assets to the ECB to be managed as part of the ECB’s foreign reserves. The ECB's reserves are managed by the national central banks of the Eurosystem, where each bank is allocated a share of financial assets to manage in accordance with their capital key1The ECB's capital consists of contributions by all national central banks (NCB) of EU Member States. The NCBs' shares in this capital are calculated using a key which reflects the respective country's share in the total population and gross domestic product of the EU.
 at the ECB. Together with Oesterreichische Nationalbank, Latvijas Banka manages its share in Japanese yen. Under the Statute of the ESCB and of the ECB, 1.1 tonnes of Latvijas Banka's gold have been included in the ECB reserves.

Risk management

Risk management is an integral part of investment management. Risk management means developing risk scenarios, assessing the potential yields from financial assets and the risks to them, and modelling the optimal asset allocation. Whether the investment portfolio complies with the guidelines and the risks are distributed in accordance with investment decisions is monitored and assessed on a daily basis.

Interest rate risk is the most significant risk factor affecting Latvijas Banka's investments. In Latvijas Banka's investment structure, the most significant financial impact entails changes in 2, 5, and 10-year government bond rates, as well as changes in risk premiums (the spread between the yields of non-government and government securities). The second most significant risk factor is market price changes, in particular, the price of equities in developed markets. The Council of Latvijas Banka determines the permissible levels of investment interest rates, market prices, and other risks. Specialists of Latvijas Banka and the Investment Committee of Latvijas Banka analyse these factors on a daily basis and assess their effect on investments.

2025 in review

In 2025, central banks of developed countries continued cutting their base interest rates. The US Federal Reserve System lowered its rates by 75 basis points, while the ECB, the Bank of England, and the Bank of Canada – by 100 basis points.

Chart 2. Development of central bank policy rates (%)

Sources: Bloomberg Finance LP and Latvijas Banka.

In 2025, the base interest rates returned to the 2021-2025 level, and were much less volatile than in 2024. The volatility of interest rates briefly peaked in April 2025, when the rates responded to the initial external trade tariffs announced by the USA.

Chart 3. US Bond Market Option Volatility Estimate (MOVE) index over 10 years (index points)

Sources: Bloomberg Finance LP and Latvijas Banka.

Chart 4 illustrates the development of interest rates in dominant markets and the term structures of securities within Latvijas Banka’s investment portfolio in 2025.

  • In 2025, shorter term interest rates were slightly more volatile than longer-term interest rates.
  • The euro area, German and Canadian 2-year interest rates were considerably lower than the UK and US 2-year interest rates.

Chart 4. Range of government securities yields in 2025 (yields; %)

 

Sources: Bloomberg Finance LP and Latvijas Banka.

Note. The euro area rate is the weighted interest rate of the respective period in the European countries included in the neutral portfolio of Latvijas Banka.

  • During the year, the German and euro area longer-term interest rates increased, while the 2-year rates remained stable.
  • The UK, US, and Canadian 2-year interest rates decreased much faster than the 10-year interest rates (in the UK, they remained stable).

As Chart 65 demonstrates, the yield curves continued to normalize, becoming steeper, and by the end-2025 the spread of 10-year and 2-year interest rates across all covered markets ranged from 69 basis points (USA) to 89 basis points (Canada), while the spread of 10-year and 3-month interest rates ranged from 54 basis points (USA) to 124 basis points (Canada).

 

Chart 5. Dynamics of government securities yield curves (%)

Sources: Bloomberg Finance LP and Latvijas Banka.

After sustained dominance, the US stock market index S&P 500 offered lower returns than most other significant stock market indices. This was the first such occurrence since 2015, though investments of foreign investors in US stocks in 2025 exceeded those made in 2024 two-fold.

Chart 6. Comparison of stock indices of various countries and regions (in local currencies)

Sources: J.P. Morgan Asset Management and Latvijas Banka.

Notes. Stock indices used: US: S&P 500; UK: FTSE All-Share; emerging markets: MSCI EM; Asia: MSCI Asia ex-Japan; Europe: MSCI Europe ex-UK; Japan: TOPIX. All returns are total returns in local currencies, except MSCI Asia ex-Japan and MSCI EM that are calculated in US dollars.

In 2023 and 2024, the price of gold increased by 13.1% and 27.2% respectively, and it continued its ascent in 2025 as its price rose by 64.6% (in US dollars). In the last decade, gold has been a strong diversifier for investment portfolios. Due to the significant increase in the price of gold during the last two years, its yield was comparable to stocks during the last decade. According to calculations by the World Gold Council, 2025 was unusual, and the price of gold was largely affected by all four factors used in its model: the high-risk environment, primarily driven by geopolitical risk, reduced opportunity cost – through a weaker US dollar and marginally lower rates, price momentum and investor positioning, and the economic growth.

Chart 7. Annual returns on various asset classes over various periods (last year, last 3, 5, and 10 years) (%)

Sources: New York University Stern School of Business and Latvijas Banka.

Note. Equities represent the S&P 500 index, cash stands for the US government 3-month fixed-income securities, 10-year securities denote the US government 10-year fixed-income securities, while the gold price is expressed in US dollars.

Investment results for 2025

In the area of investment management, 2025 has been the most profitable year for Latvijas Banka so far. Income from investment management (economic return) reached nearly EUR 500 million or 8%.

Chart 8. One-year investment returns (%)

Source: Latvijas Banka.

Latvijas Banka's investments are managed with the objective of ensuring compliance with the fundamental principles of management in the medium and long term. Although the market value of financial assets fell sharply in 2022 as a result of the rapid rise in interest rates (see Chart 9), the medium-term income generated by Latvijas Banka from investment management remained strong (see Chart 10).

Chart 9. Annual total return performance of the S&P 500 and US 10-year Treasury since 1928 (%)

Sources: Bloomberg Finance LP, ICE Data Services and Latvijas Banka.

Chart 10. Total 5-year economic profit of investments (rolling, millions of euro)

Source: Latvijas Banka.