European Managers Cut U.S. Treasury Exposure Amid Yield Spike
Norway's sovereign fund proposes cutting U.S. bond weight to 21.9 percent as yields near multi-year highs.
Norway’s sovereign wealth fund proposed reducing its U.S. Treasury weight to 21.9 percent. This marks a drop from the previous level of 34.1 percent. The move reflects a broader shift among European institutions. They are reassessing the risk profile of American government debt.
The benchmark 10-year U.S. Treasury yield hovered near 5 percent. This level was last seen in 2007. U.S. federal debt has exceeded 40 trillion dollars. These factors are driving a decline in investor confidence regarding the safety of Treasuries.
Sovereign fund adjusts allocation strategy
Norges Bank Investment Management manages Norway’s sovereign wealth fund. The fund proposed lowering the share of government bonds in its fixed-income benchmark. The new target is 50 percent, down from 70 percent. The freed capital will shift toward non-government debt. Mortgage-backed securities are a primary target for this reallocation.
Asset managers reduce long-dated exposure
Swisscanto Asset Management is reducing holdings of long-dated U.S. Treasuries. The 30-year yield recently broke above its previous trading range. The firm finds Australian government bonds more attractive. Brown Shipley has also maintained an underweight position in U.S. debt. Cited reasons include higher energy prices and persistent geopolitical uncertainty.
BlackRock’s head of global fixed income stated government bonds are no longer risk-free. He noted a corporate entity with similar fiscal metrics would not receive such a rating. Man Group’s chief strategist identified reduced Treasury exposure as a key autumn trend. Some U.S. allies are also considering relocating gold reserves.
Yields remain elevated despite buybacks
BNP Paribas Wealth Management attributes the yield rise to higher capital demand. A rising term premium amid Federal Reserve uncertainty is also a factor. The firm believes U.S. Treasury buybacks will not lower yields permanently. It set a 12-month target of 4.50 percent for the 10-year yield. GN auto markets/bonds data confirms yields may temporarily approach 5 percent.
