Norway's $2.3T Fund Proposes Deep US Treasury Cuts
Norway's $2.3T Fund Proposes Deep US Treasury Cuts
The News
The manager of the world's largest sovereign wealth fund wants to cut its pile of US government debt, saying it can earn more money elsewhere.
Norges Bank Investment Management, which runs Norway's $2.3 trillion oil fund, told the country's finance ministry it should shrink the government-bond slice of its fixed income portfolio from 70% to 50%, according to a letter made public Friday.
The change would take the fund's US Treasury holdings from 34.1% of its bond book down to 21.9% — the single biggest cut in the plan.
Timeline
Norway establishes the fund to invest the country's oil revenues, with strict guardrails meant to preserve it for the long term.
The fund swings to a $40 billion loss as investors turn risk-off during a tech downturn.
CNBC reports long-dated Treasury yields pushed to decade highs as investors worry about the US fiscal path.
US government debt passes the $40 trillion mark for the first time, CNBC reports.
NBIM's letter to the finance ministry is published, laying out the proposed overhaul of the fund's bond holdings.
Reactions
NBIM chief executive Nicolai Tangen and Norwegian central bank governor Ida Wolden Bache argued the fund can capture higher premiums by moving into riskier debt, and said a 50% government-bond share still leaves enough liquidity to ride out market turbulence.
The two singled out mortgage-backed securities — the instruments made infamous in the 2008 financial crisis — saying they tend to move opposite to equities in a crisis and could deliver an "additional reduction of volatility" closer to what government bonds provide than corporate bonds do.
Economist Mohamed El-Erian told CNBC that "reliable buyers and holders of U.S. Treasurys are under pressure," pointing to Japan, China and Gulf countries. On Norway's proposal specifically, he said: "The size isn't big, but the signal that traditional holders and buyers are becoming less reliable is a very important one."
What's Next
The proposal is a recommendation, not a decision. Norway's Ministry of Finance sets the fund's investment mandate and would have to sign off before NBIM starts moving money.
If it is approved, the shift would be gradual, and the fund would also rebalance beyond Treasurys: euro-area government bonds would fall from 16.8% to 14.1%, Japanese government bonds would rise from 4.6% to 7.4%, and non-government US fixed income — corporate bonds and similar debt — would jump from 16.2% to 27.6%.
More
NBIM also wants to stop weighting its government bond holdings by GDP and start weighting them by market value, citing the heavy debt loads carried by nearly every developed economy.
The Numbers
The fund currently holds roughly $1.65 trillion in equities and $592 billion in fixed income, and owns almost 1.5% of every listed company's shares worldwide.
Recent record profits have come largely from US and Asian tech and the AI boom, and Tangen has warned those returns are not sustainable in a downturn. An NBIM stress test found an AI correction could wipe $740 billion — 35% — off the fund's value.
Poll
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