Norway's sovereign wealth fund, Norges Bank Investment Management (NBIM), has recommended reducing its allocation to government bonds from 70% to 50% in its $2.3 trillion investment portfolio. This change primarily affects its U.S. Treasury holdings, which would decrease from 34.1% to 21.9%.
The fund aims to diversify its investments, increasing its share of Japanese government bonds and non-government U.S. fixed income, such as corporate bonds, while also considering riskier assets like mortgage-backed securities. This proposal comes at a critical time for the Treasury market, where long-dated yields are at decade-highs amid concerns over the U.S. fiscal outlook.
Economist Mohamed El-Erian noted that the reduction in Treasury holdings by traditional buyers like NBIM could indicate a broader trend of diminishing reliability among these investors. The fund's CEO Nicolai Tangen has highlighted the potential for higher returns through diversification, although he cautioned that recent high returns may not be sustainable in a market downturn.
A recent stress test indicated that an AI market correction could significantly impact the fund's value, emphasizing the need for a strategic shift in asset allocation