Norway's sovereign wealth fund wants to dial back its reliance on government debt. In a letter made public Friday, the heads of Norges Bank Investment Management recommended cutting the government slice of its bond benchmark to 50% from 70%. Their view: half the book in sovereigns still gives enough liquidity when markets seize up, while freeing room to hunt for better returns elsewhere.
The suggested rework would pare back the fund's U.S. Treasury allocation to 21.9% from 34.1% and trim euro-area sovereign exposure to 14.1% from 16.8%. At the same time, the share of Japanese government bonds would climb to 7.4% from 4.6%. NBIM also intends to raise the share of U.S. credit outside the government sector, including corporate bonds, to 27.6% from 16.2%.
NBIM advocates basing the government-bond weights on market value rather than gross domestic product, citing the heavy debt loads across most developed markets. According to CEO Nicolai Tangen and Ida Wolden Bache, the head of the central bank, the fund expects higher premia by leaning into riskier assets like mortgage-backed securities that they see as well suited to a long-term investor. They noted that mortgage-backed securities, infamous during the 2008 crisis, often move in the opposite direction of stocks during turmoil and could deliver an "additional reduction of volatility" that behaves more like government bonds than corporate bonds.
This rethink lands as the Treasury market navigates a tricky patch, with long-dated yields at decade highs amid worries about U.S. finances and rising debt. "Reliable buyers and holders of U.S. Treasurys are under pressure," Mohamed El-Erian, an economist, told CNBC's Carolin Roth on Friday, pointing to Japan, China and Gulf countries. On NBIM's own move, he added, "The size isn't big, but the signal that traditional holders and buyers are becoming less reliable is a very important one."
The fund manages $2.3 trillion. Its equity portfolio totals about $1.65 trillion, representing close to 1.5% of the shares listed globally, while its fixed-income holdings come to $592 billion. Established in 1998 to channel revenues from Norwegian oil under strict guardrails, it has recently logged record gains thanks to big bets on U.S. and Asian tech and companies benefiting from the AI wave, including semiconductor names.
Tangen has cautioned those returns will not hold if markets turn. During the first quarter of 2025, the fund recorded a loss of $40 billion as investors shifted to a risk-off stance. A recent stress test indicated that an AI pullback could wipe out $740 billion, or 35%, of its value.
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What does this mean for your money? The world's biggest investor is tilting a bit away from sovereign debt and toward credit and mortgages while acknowledging tech-fueled gains can swing the other way.
