The Norwegian sovereign fund has suggested decreasing its exposure to US Treasury bonds by $80 billion. This proposal aims to increase profitability and diversify the fund's investments.
Norges Bank Investment Management, the manager of the Norwegian sovereign fund with assets of $2.3 trillion, has proposed a restructuring of its public debt portfolio. In a letter presented to the Ministry of Finance, it is recommended to reduce the weighting of public debt in the fund's bond index from 70% to 50%, which would imply a decrease of $80 billion in US Treasury bonds. This information has been published by expansion.com.
According to calculations from Financial Times, the restructuring could reduce the fund's overall allocation to government bonds by $106 billion, primarily affecting Treasury bonds. Currently, about 26% of the total fund is invested in fixed income.
The proposal responds to growing concerns over rising public debt and recent volatility in the bond market, exacerbated by the war between the United States and Iran, which has generated inflationary fears. Treasury Secretary Scott Bessent has intervened in the market several times, but yields are still at historic highs.
The reduction in Treasury bonds would be offset by the acquisition of higher-risk debt, such as mortgage-backed securities (MBS), which offer higher yields due to their risk nature. These MBS are backed by government agencies, which does not completely eliminate the risk of default by the US government.
The letter, signed by Ida Wolden Bache, governor of Norges Bank, and Nicolai Tangen, CEO of NBIM, was sent in response to inquiries from the Ministry of Finance regarding the role and weighting of the fund's bond portfolio. The exposure to the US dollar would remain virtually unchanged, with an estimated decrease of 0.5 percentage points.
The proposal also suggests adapting the Bloomberg Global Aggregate bond index to an indicator that divides investment between government bonds and other forms of debt. The goal is to diversify sources of profitability, as explained by a spokesperson for the fund.
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