Norway Sovereign Wealth Fund Proposes Cutting US Treasury Holdings

Norges Bank Investment Management, the manager of Norway's $2.3 trillion sovereign wealth fund, has proposed a significant reallocation of its portfolio to reduce reliance on government bonds. The plan seeks to lower the total allocation of government bonds from 70% to 50%, primarily by cutting U.S. Treasury holdings from 34.1% to 21.9% and reducing euro area holdings from 16.8% to 14.1%.

To offset these reductions and boost returns, the fund intends to increase its holdings of Japanese government bonds to 7.4% and expand non-government U.S. fixed income, such as corporate bonds, to 27.6%. The proposal also includes investments in mortgage-backed securities to mitigate volatility. This strategic shift comes as U.S. Treasury yields reach decade-highs amid concerns regarding the U.S. fiscal trajectory.

CEO Nicolai Tangen advocated for diversifying into riskier assets to earn higher premiums, while central bank chief Ida Wolden Bache supported the move toward mortgage-backed securities. The fund further proposes weighting government bond holdings by market value instead of GDP, citing the high debt loads currently held by developed economies. The proposal has been submitted to the finance ministry of the Government Pension Fund of Norway.