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Photo by Odin Jaeger/Bloomberg via Getty ImagesNorway’s sovereign wealth fund, the world’s biggest, proposed reducing the amount of government bonds in its US$2.3 trillion portfolio to boost holdings of riskier debt, with United States Treasuries the most affected.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorGovernment debt should be cut to 50 per cent of the bond holdings from 70 per cent, 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.There’s no guarantee the fund will be allowed to make the change.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againWith about 30 per cent invested in bonds, the fund had more than US$615 billion of fixed-income assets in its portfolio as of June 30, about 59.5 per cent of which were invested in government bonds, according to the latest figures on its website. Adding in government-related bonds, the allocation is 69 per cent.The proposed reduction in government bonds’ share to 50 per cent would imply a decrease of about US$58 billion of such bonds, according to Bloomberg calculations. While the proposed change implies holdings of U.S. Treasuries would drop by US$75 billion, those of Japanese government bonds could increase by US$20 billion, Bloomberg analysis shows. Holdings of euro area government bonds are also projected to decrease.NBIM follows a benchmark index set by the Finance Ministry, with major allocation changes to its investment mandate requiring approval in parliament.“It’s a step in the right direction, but would be more of a backroom decision, as it would not require the lengthy review and public approval process that changes to the overall debt-equity allocation typically entail,” said Karin Thorburn, a Norwegian School of Economics professor who has served on numerous committees related to the fund’s investment strategy.“It’s the second-best option, because I think it would be better to adjust the overall portfolio allocation by increasing equities and reducing bonds,” she added.State Secretary Ellen Reitan said the government will “address any proposals for adjustments to the investment strategy in the white paper on the fund, which will be presented to the parliament in the spring” after the Finance Ministry “will thoroughly review the recommendations,” in an emailed comment.She also pointed out that a group of experts, tasked with reviewing the investment strategy of the fund, is due to present its report in January next year.One example where the fund hasn’t got its way is private equity. It’s spent years pushing to be allowed to invest in the asset class, only to be rebuffed time and again. It renewed the plea this week.NBIM, founded in the early 1990s to invest Norway’s oil and gas wealth, has limited scope for active investing. Its holdings are spread across equities, fixed income, real estate, and renewable infrastructure, all outside Norway. Real estate is a growth area in its new strategy.A record first-half return for the fund, equivalent to US$189 billion, is “as good as it gets,” chief executive Nicolai Tangen said in August. He has in past months increasingly cautioned the Norwegian public that the fund will “at some point” be hit by a slump or in the worst-case scenario disappear completely.“A government share of 50 per cent 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 London trading Friday after a week under pressure. The U.S. 10-year yield topped 4.75 per cent 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 U.S. 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 U.S. 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 United Kingdom 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 U.S. 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 the wealth fund to exit U.S. markets. That was in response to geopolitical tensions over the future of Greenland that threatened to split the North Atlantic Treaty Organization.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.”“GDP is a poor basis for building a financial portfolio,” said Espen Henriksen, associate professor at Norwegian Business School BI. “This moves us closer to a financially sound benchmark.”Research in recent years has shown that when equities fall, the safety and liquidity benefits from government bonds over corporate bonds are diminishing, he said.—With assistance from Winnie Hsu and Russell Ward. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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