Norwegian sovereign fund plans to cut investments in US government bonds
Norway’s sovereign wealth fund, Norges Bank Investment Management (NBIM), which manages $2.3 trillion in assets, has proposed reducing the share of government bonds in its portfolio. This will have the greatest impact on investments in US Treasury securities, CNBC Top News reports.
Changes to the portfolio structure
In a letter to Norway’s Ministry of Finance, NBIM management recommended reducing the share of government bonds in its debt investments from 70% to 50%. The fund believes this level will maintain sufficient liquidity during market turmoil while allowing it to seek higher returns in other assets.
Under the proposed reallocation, the share of US Treasury securities in the fund’s investments will gradually decrease from 34.1% to 21.9%. The share of government bonds of eurozone countries is set to decline from 16.8% to 14.1%, while the share of Japanese government securities is to rise from 4.6% to 7.4%.
NBIM also proposes determining the weight of government bonds by their market value rather than by countries’ gross domestic product. The fund explained this by the high debt levels in nearly all advanced economies.
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Investments in other debt instruments
NBIM plans to increase the share of non-government US debt instruments, including corporate bonds, from 16.2% to 27.6%. The fund’s CEO Nicolai Tangen and Norges Bank Governor Ida Wolden Bache said that diversification into riskier assets could provide higher premiums.
Among such assets, the fund is also considering mortgage-backed securities. NBIM executives estimate that during crises, they usually move in the opposite direction to equities and may further reduce portfolio volatility.
The fund currently holds about $1.65 trillion in equities and $592 billion in debt instruments. It owns approximately 1.5% of all shares in the world’s publicly listed companies. An NBIM stress test showed that a correction in the artificial intelligence market could reduce the fund’s value by $740 billion, or 35%.
