Norway's Sovereign Wealth Fund to Reduce U.S. Treasury Holdings
Norway’s $2.3 trillion sovereign wealth fund, Norges Bank Investment Management (NBIM), plans to reduce its holdings of government bonds, particularly U.S. Treasurys, as part of a broader portfolio rebalancing strategy aimed at diversifying risk and improving returns. The proposed shift would cut the allocation of government bonds from 70% to 50%, with specific reductions in U.S. Treasury exposure from 34.1% to 21.9%. This move reflects concerns over high debt levels among developed economies, prompting NBIM to adjust its weighting criteria for bond holdings. The fund also intends to increase investments in non-government fixed income assets such as corporate bonds and mortgage-backed securities (MBS), which it views as offering better risk-adjusted returns. CEO Nicolai Tangen emphasized that MBS could provide a buffer during market volatility, similar to government bonds but with higher yields. The decision comes amid rising U.S. Treasury yields and growing concerns over the sustainability of high returns from tech-heavy equity investments. NBIM has seen record profits in recent quarters due to strong performance in technology and AI-related stocks; however, it warns that these gains may not be sustainable during a market downturn. A stress test indicated potential losses as large as $740 billion if an AI sector correction occurs.
Topics: Bond portfolio rebalancing Global bond markets Norway Sovereign wealth fund U.S. Treasurys