Norway's $2.3 trillion sovereign oil fund, managed by Norges Bank, has proposed a substantial reduction in its exposure to US government bonds. The fund recommends decreasing its fixed income portfolio's allocation to government bonds from 70% to 50%. This strategic shift would involve cutting its US Treasury holdings by approximately $80 billion to $100 billion from its current $199 billion pile. The proposal, submitted to Norway's Ministry of Finance in early September, seeks to enhance returns by exploring other debt types.
This move by one of the world's largest sovereign wealth funds is not yet approved and would likely be implemented gradually over an extended period rather than through immediate, large-scale sales. Past benchmark reviews of this magnitude by major sovereign wealth funds typically result in phased changes, allowing index providers and trackers to adjust. The fund's rationale aligns with a broader trend among large funds seeking higher-yielding sovereign, credit, or securitized exposure while largely maintaining duration.
The potential reduction in demand from such a significant holder could put downward pressure on the belly and long end of the US Treasury curve. Conversely, it could support sectors where the fund opts to reallocate its investments. While the proposal is a clear directional signal, its ultimate impact depends on its approval and the eventual phasing schedule. This development comes as global bond yields are at their highest level since 2008, with the 30-year US Treasury recently touching 5%.
