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Norway’s Sovereign Fund Proposes Deep Cuts to US Treasury Holdings

From Asharq Al-Awsat · () English

Translated from English and summarized by DistantNews. Read the original for the full story.

At a glance

News Documents & data New plan
  • Norges Bank Investment Management has proposed reducing government bonds to 50% from 70% of the benchmark bond index, with US Treasuries taking the largest cut.
  • The change could reduce the fund’s roughly $215 billion in US Treasury holdings by nearly $80 billion, although implementation would likely not begin until 2027.
  • The fund also wants more non-government debt and may consider increasing unlisted investments to improve diversification and reduce concentration risks.

Norway’s $2.3 trillion sovereign wealth fund could sharply reduce its holdings of US government debt under proposals aimed at reshaping its bond portfolio and improving returns.

Norges Bank Investment Management has recommended cutting the government-bond weighting in its benchmark index to 50% from 70%. US Treasuries, currently the fund’s largest holding, would receive the biggest reduction. Reuters calculations indicate that the change could remove nearly $80 billion from the fund’s holdings of about $215 billion in US Treasuries at the end of June.

We recommend that the government subindex of the bond index be reduced from 70% to 50%.

· Ida Wolden Bache and Nicolai TangenThe Norges Bank leaders stated the central proposal in a letter to Norway’s finance ministry.

The proposals come as government bond markets face pressure from higher long-term borrowing costs, inflation concerns and rising government debt. Because the Norwegian fund is the world’s largest and owns an average 1.5% of listed companies globally, changes to its portfolio could affect wider market flows.

A government share of 50% will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets.

· Ida Wolden Bache and Nicolai TangenThe letter explained why the fund believes a smaller government-bond allocation would remain adequate.

Norges Bank Governor Ida Wolden Bache and Norges Bank IM chief executive Nicolai Tangen wrote that “a government share of 50% will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets.” The fund said it would wait for the finance ministry’s response and make any changes gradually to limit market disruption and transaction costs.

The recommendations will be submitted to the ministry in January and discussed during the fund’s annual white paper process next spring. Parliament will then hold a hearing before a final recommendation. The proposed bond-index changes would favor more non-government debt, including mortgage-backed securities. Total US dollar exposure would remain around 50%, but the mix would shift toward US mortgage and government-related bonds. The fund is also considering more unlisted real estate and renewable-energy investments as a way to reduce concentration in its equity portfolio.

What changes is the mix inside the dollar market: less US government debt, correspondingly more US mortgage and government-related bonds.

· Norges Bank Investment Management spokespersonThe spokesperson described how the fund’s US dollar exposure would change.
About this summary

Originally published by Asharq Al-Awsat in English. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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