Government debt across all issuers would fall to 50% of the bond index from 70%
Nearly US$80bn would come out of the US Treasury holdings of the world's largest sovereign wealth fund under a plan to rebuild its bond index.
Reuters, calculating against holdings of about US$215bn at the end of June, reported that Norges Bank Investment Management (NBIM), which runs Norway's US$2.3tn fund, has recommended cutting the government subindex of its benchmark bond index to 50 percent from 70 percent in a letter to the country's finance ministry.
Under the proposals, the weighting to US government bonds would drop to 21.9 percent from 34.1 percent, according to the letter as reported by Reuters, while euro area debt would fall to 14.1 percent from 16.8 percent and Japanese government bonds would climb to 7.4 percent from 4.6 percent.
The UK allocation would stay at 4.2 percent, Reuters reported.
Bloomberg calculated that the change implies about US$58bn less in government bonds overall and a US$75bn drop in Treasuries, with Japanese government debt up by roughly US$20bn.
Total US dollar exposure would stay near 50 percent, a Norges Bank Investment Management spokesperson told Reuters.
What shifts is "the mix inside the dollar market," with less US government debt and correspondingly more US mortgage and government-related bonds.
The publication reported that the allocation to US non-government debt would jump to 27.6 percent from 16.2 percent, leaving the index's overall dollar weighting down only slightly at 52.5 percent from 52.9 percent.
Norges Bank said in the letter that a government share of 50 percent "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," Bloomberg reported.
Chief executive Nicolai Tangen and central bank governor Ida Wolden Bache wrote that mortgage-backed securities tend to move in the opposite direction to equities during crises and could deliver an "additional reduction of volatility" closer to government bonds than to corporate bonds, according to CNBC.
"Reliable buyers and holders of US Treasurys are under pressure," economist Mohamed El-Erian told CNBC's Carolin Roth in a Friday interview, citing Japan, China, and Gulf countries.
On NBIM's own reduction, El-Erian said, "The size isn't big, but the signal that traditional holders and buyers are becoming less reliable is a very important one."
According to CNBC, the government subindex could shift to market value weighting from gross domestic product (GDP) weighting.
Bloomberg quoted Norges Bank telling the ministry that high government debt now runs across developed economies rather than marking out a few countries, which the bank said justifies the change.
Approval is not assured, Bloomberg reported, noting the fund has spent years seeking permission to invest in private equity without success.
State secretary Ellen Reitan said in an emailed comment to the outlet that the finance ministry "will thoroughly review the recommendations" and 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."
A Norges Bank IM spokesperson told Reuters the proposals will form part of recommendations to the ministry in January, and the site reported that any cuts are unlikely to land until several months into 2027 at the earliest.
The US 10-year yield topped 4.75 percent on Monday for the first time since January 2025, according to Bloomberg.
CNBC reported that long-dated Treasury yields have been pushed to decade highs by concern over the US fiscal trajectory and a debt load that passed US$40tn.
