Government debt should be cut to 50% of the bond portion of the portfolio from 70%, Norges Bank Investment Management said in a letter sent to the Ministry of Finance on Tuesday and published on its website. The remaining portion of the bond allocation should provide exposure to more sources of risk premiums, the fund said.
The fund had more than $615 billion of fixed-income assets in its portfolio as of June 30, about 59.5% of which were invested in government bonds, according to the latest figures on its website.
The proposed reduction in this share to 50% would imply a decrease of about $58 billion of government bonds, according to Bloomberg calculations. While the proposed change implies holdings of US Treasuries would drop by $75 billion, those of Japanese government bonds could increase by $20 billion, Bloomberg analysis shows. Holdings of euro area government bonds are also projected to decrease.
“A government share of 50% provides a comfortable margin to the estimated upper limit for the liquidity needs and reduces the risk of significant market impact in the event of a liquidity event,” Norges Bank said in the letter.
Treasuries were little changed in Asia trading Friday after a week under pressure. The US 10-year yield topped 4.75% on Monday for the first time since January 2025 as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates. Investors have been grappling with worries over the size of the US government debt pile while gauging how aggressively the Fed will need to raise rates to fight inflation.
“NBIM isn’t making a direct call on US fiscal sustainability,” said Kenneth Crompton, head of rates strategy at National Australia Bank Ltd. “They’re arguing that they already own enough government bonds to satisfy liquidity needs, and that a long-horizon investor should harvest a broader set of fixed income risk premia.”
Bonds globally have been selling off too, with yields on a Bloomberg index back at the highest in almost two decades. Government spending in countries like Japan, the UK and France is keeping debt issuance elevated, leading fund managers to demand more compensation to own longer-maturity debt. Meanwhile, the vast amount of borrowing needed to finance the AI boom is intensifying a fight for funds, also helping push yields higher.The selloff in US bonds has even led Treasury Secretary Scott Bessent to expand a buyback program and tout other tools at his disposal in an effort to contain long-term borrowing costs.
“Debt and deficits are unsustainable in most of the advanced economies,” said Nick Ferres, chief investment officer at Vantage Point Asset Management. “At some point there will be a fiscal crisis, however this development is not necessarily a signal of that today.”
In January, Norway’s Finance Minister Jens Stoltenberg said he saw no reason for its wealth fund to exit US markets. That was in response to geopolitical tensions over the future of Greenland.
In its statement, Norges Bank also proposed that the government bond subindex be weighted by market value instead of gross domestic product, “since high government debt is now a general feature of developed economies rather than a distinctive feature of a few countries.”
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