Nicolai Tangen, the CEO of Norges Bank Investment Management (NBIM), the largest sovereign wealth fund in the world, wrote a letter to the country’s Finance Ministry, made public Friday, advising that NBIM was planning to significantly reduce its holdings of Treasury paper. The letter explained that overall bond holdings would be reduced from 70% to 50% of its portfolio, in order to invest that money in riskier—and presumably more profitable—assets, such as mortgage-backed securities. Yes, the same MBS which were at the center of triggering the 2008 financial market blowout!
NBIM has a $2.3 trillion fund, the largest in the world, which originally came largely from Norway’s formidable oil exports, and has more recently been augmented by its investments in AI and other tech stocks.
In light of spreading fears that the AI bubble could pop, “a recent stress test by NBIM found that an AI correction could wipe $740 billion, or 35%, off the fund’s value, CNBC reported. CNBC added that “the proposed reallocation would gradually cut NBIM’s Treasury holdings from 34.1% to 21.9%, [and] reduce its euro area holdings from 16.8% to 14.1%.” This comes to an $80 billion cut in holdings of U.S. Treasurys.
NBIM is thus planning to join the ongoing worldwide exit from U.S. Treasurys, and the accompanying rise in interest rates which has driven Treasury Secretary Scott Bessent to significantly increase the amount of Treasury funds used to re-purchase its own bonds, in a losing effort to lower interest rates. Bessent has gone so far as to threaten to deploy the Treasury’s $1 trillion contingency fund for that purpose.
The NBIM announcement has sent a deep rumble throughout financial markets. “Reliable buyers and holders of U.S. Treasuries are under pressure,” economist Mohamed El-Erian told CNBC’s Carolin Roth in a Friday interview, citing Japan, China and Gulf countries. “The size isn’t big, but the signal that traditional holders and buyers are becoming less reliable is a very important one.”
