Sept. 4 (UPI) — Norway’s sovereign wealth fund is considering changing its investment strategy by scaling back its government bond investments, including with the U.S. Treasury.
Norges Bank Investment Management recommended cutting the government’s bond investments by 20% in a letter to Norway’s Finance Ministry that was published on Friday. The wealth fund cited a need for diversification and limiting exposure to risks in a changing economic landscape.
Norges explained there are three purposes for its recommendations: to reduce fluctuation in its $2.3 trillion investment portfolio, provide liquidity and earn risk premiums in the bond market. It adds that reducing its position in government bonds “does not necessarily materially weaken the bond portfolio’s ability to reduce fluctuations in the fund.”
“We recommend that the government subindex of the bond index be reduced from 70% to 50%,” Ida Wolden Bache and Nicolai Tangen, the leaders of Norges Bank, said in a letter. “A government share of 50 percent will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets.”
With the recommended actions implemented, Norges Bank’s holdings in the U.S. Treasury would fall from 34.1% to 21.9%.
The advice from Norges Bank comes as the U.S. Treasury is facing the highest yields on long-term debt since the onset of the Great Recession in 2007.
Last month, the U.S. Treasury announced that it plans to double its bond buybacks in response to the threat of rising interest rates.
Norges Bank’s proposal also would reduce its holdings in Japan and some euro area countries.
