Norway's $2.3 trillion sovereign wealth fund is considering a major overhaul of its bond portfolio, including a sharp reduction in its holdings of US Treasuries and greater exposure to mortgage-backed and other non-government debt.
Reuters reported that Norges Bank Investment Management (NBIM), which manages the world's largest sovereign wealth fund, has proposed cutting the government bond component of its benchmark bond index to 50% from the current 70%.
The move would particularly hit US government debt, the fund's largest government bond holding. Based on Reuters calculations, the proposed changes could reduce its US Treasury holdings by nearly $80 billion from about $215 billion at the end of June.
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The shift comes as government bond markets face pressure from rising inflation concerns and elevated government debt levels, which have pushed up long-term borrowing costs.
Under the proposed changes, NBIM wants to increase its allocation to non-government debt, including mortgage-backed securities, to improve diversification and gain greater exposure to risk premiums.
Importantly, the fund's overall US dollar exposure would remain broadly stable. Instead, the composition of its dollar-denominated bond holdings would change, with less allocated to US government debt and more to US mortgage and government-related bonds.
The proposed weighting of US government bonds in the fund's bond index would fall to 21.9% from 34.1%. At the same time, the allocation to US non-government debt would rise sharply to 27.6% from 16.2%.
The overall US dollar weighting would therefore decline only marginally, to 52.5% from 52.9%.
NBIM has also proposed changes to other regional allocations. The weighting of euro area government debt would fall to 14.1% from 16.8%, while Japan's allocation would rise to 7.4% from 4.6%.
The UK allocation would remain unchanged at 4.2%. The proposed changes are aimed at bringing the bond index closer to broader market weightings while improving diversification, according to the report.
NBIM said any changes would be implemented gradually to limit the impact on markets and transaction costs.
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The proposals will be included in recommendations to Norway's finance ministry in January and discussed during next spring's annual white paper process. Any final decision would then require parliamentary consideration.
As a result, any reduction in the fund's Treasury holdings is unlikely to begin before several months into 2027, Reuters reported.
Norway's sovereign wealth fund, which has assets of around $2.3 trillion, is one of the world's most influential institutional investors. It owns, on average, around 1.5% of all listed companies globally, meaning large portfolio shifts can have implications for financial markets.
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