The world's largest sovereign wealth fund is proposing to significantly reduce its holdings of U.S. Treasury bonds, a move that analysts say carries symbolic weight even if the immediate financial impact is limited.
Norway's Norges Bank Investment Management, which manages $2.3 trillion in assets, sent a letter to Norway's Finance Ministry on Friday recommending that the government bond portion of its fixed income portfolio be cut from 70% to 50%. The letter, signed by NBIM CEO Nicolai Tangen and Norway's central bank chief Ida Wolden Bache, was made public Friday, according to CNBC.
The proposed changes are specific and substantial. NBIM's Treasury holdings would fall from 34.1% to 21.9% of its bond portfolio. Its euro area government bond holdings would drop from 16.8% to 14.1%. Japanese government bonds would rise from 4.6% to 7.4%. At the same time, NBIM wants to grow its nongovernment U.S. fixed income holdings, including corporate bonds, from 16.2% to 27.6%.
The fund also wants to shift from weighting its government bond holdings by gross domestic product to weighting them by market value, citing high debt loads across nearly all developed economies.
Tangen and Wolden Bache said the fund could earn higher premiums by moving into riskier assets. They specifically mentioned mortgage-backed securities, which became notorious during the 2008 financial crisis, as instruments that tend to move in the opposite direction from equities during market downturns. The two executives said that dynamic could provide an additional reduction of volatility, making mortgage-backed securities behave more like government bonds than corporate bonds over the long term.
The proposal arrives at a sensitive moment for the Treasury market. Long-dated yields have been pushed to decade-highs as investors focus on the U.S. fiscal outlook and its growing debt load.
Economist Mohamed El-Erian addressed the significance of the NBIM proposal directly in a Friday interview with CNBC. "Reliable buyers and holders of U.S. Treasurys are under pressure," El-Erian said, citing Japan, China, and Gulf countries as examples.
On the Norway fund specifically, El-Erian said, "The size isn't big, but the signal that traditional holders and buyers are becoming less reliable is a very important one."
NBIM currently holds approximately $1.65 trillion in equities, representing close to 1.5% of all shares in the world's listed companies, alongside $592 billion in fixed income. The fund was established in 1998 to invest revenues from Norwegian oil production, with rules designed to preserve its long-term value.
The fund has posted record profits in recent quarters, driven largely by investments in U.S. and Asian technology companies and semiconductor stocks tied to the artificial intelligence boom. However, Tangen has previously warned that those returns will not be sustainable if markets turn lower. In the first quarter of 2025, the fund recorded a $40 billion loss when investors moved away from risk assets.
The proposed changes are recommendations at this stage and require approval from Norway's Finance Ministry before taking effect.
