Norway's sovereign wealth fund is proposing to slash its U.S. Treasury holdings

Free daily briefing on global business news.

Norges Bank Investment Management wants to reduce its government bond allocation from 70% to 50%, with U.S. Treasurys taking the largest hit

Norges Bank Investment Management, which manages Norway's $2.3 trillion sovereign wealth fund, has proposed reducing the share of government bonds in its portfolio from 70% to 50%, a shift that would cut its U.S. Treasury holdings from 34.1% to 21.9% of its bond index.

The recommendation came in a letter sent to Norway's Ministry of Finance on Sept. 1 and made public Friday. The fund's leaders, Norges Bank Governor Ida Wolden Bache and NBIM CEO Nicolai Tangen, said a government bond share of 50% would be sufficient to meet the fund's liquidity needs, including during periods of market turbulence, while freeing up room to pursue higher returns in other segments.

The proposal would also reduce the fund's euro area government bond holdings from 16.8% to 14.1%, while increasing its Japanese government bond allocation from 4.6% to 7.4%. Holdings of non-government U.S. fixed income, such as corporate bonds, would rise to 27.6% from 16.2%, according to CNBC.

In the letter, Wolden Bache and Tangen also recommended switching from GDP-based weighting to market-value weighting for the government bond portion of the index. Their argument was that elevated sovereign debt has become so commonplace across advanced economies that the GDP approach no longer serves its original purpose of steering the fund away from the most indebted issuers.

The fund also proposed including mortgage-backed securities and government-related bonds in its benchmark index. Wolden Bache and Tangen noted that agency mortgage-backed securities — backed by guarantees from Fannie Mae, Freddie Mac, and Ginnie Mae — have tended to appreciate when equity markets fall, making their risk profile closer to that of government bonds than to corporate debt. Mortgage-backed securities would account for roughly 13% of the proposed new index, against zero today.

The fund's bond holdings currently stand at $592 billion, while its equity investments total around $1.65 trillion, giving it ownership of close to 1.5% of all shares in the world's listed companies.

The proposal arrives as the fund posted a record first-half profit of roughly $184.9 billion, driven by strong returns in Asian technology stocks and the semiconductor sector. The fund returned 9.4% in the first half, with equities up 13% over the period.

The Ministry of Finance has commissioned a separate expert group to assess the fund's overall strategy, with a report due by January 2027. NBIM said its advice takes the current framework as its starting point and that the Ministry's conclusions on risk tolerance could affect how the bond index is ultimately composed.

Join 500,000+ readers who start their day with Quartz.

By subscribing, you agree to our Terms of Service and Privacy Policy.

Global business news for a smarter world