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Norway's sovereign wealth fund, Norges Bank Investment Management (NBIM), has proposed reducing its allocation of government bonds in its $2.3 trillion portfolio, particularly targeting U.S. Treasurys. The fund aims to lower its government subindex from 70% to 50%, ensuring sufficient liquidity during market turbulence while seeking higher returns elsewhere.
This reallocation would gradually cut NBIM’s Treasury holdings from 34.1% to 21.9%, reduce euro area holdings from 16.8% to 14.1%, and increase Japanese government bond holdings from 4.6% to 7.4%. NBIM also plans to shift its bond weighting from GDP to market value due to high debt loads in developed economies. The move comes amid rising long-dated Treasury yields, driven by concerns over U.S. fiscal trajectory and debt levels.
Economist Mohamed El-Erian noted that traditional buyers of Treasurys, including Japan, China, and Gulf countries, are under pressure. NBIM intends to increase its holdings of non-government U.S. fixed income, such as corporate bonds, to 27.6% from 16.2%, aiming for higher premiums through diversification into riskier assets like mortgage-backed securities. These securities, historically volatile during crises, could provide additional volatility reduction.
NBIM currently holds $1.65 trillion in equities, owning nearly 1.5% of global listed companies, and $592 billion in fixed income. The fund, established in 1998, has benefited from record profits in recent quarters, particularly in U.S. and Asian tech firms and AI-related sectors. However, CEO Nicolai Tangen warns that these returns may not be sustainable in downturns.
A recent stress test revealed that an AI correction could reduce NBIM’s value by $740 billion, or 35%. In the first quarter of 2025, the fund experienced a $40 billion loss due to risk aversion.
Source: CNBC
