The End of the Bond Hedge?

Norway’s $1.7 trillion sovereign wealth fund is preparing to slash its holdings of government bonds, arguing that the traditional safe haven no longer offers the protection it once did. The move comes as a global bond rout has rattled markets, diesel prices hit an all-time high in the U.S., and Volkswagen approved a restructuring plan that will cut 100,000 jobs. Here are the major developments from this week’s episode of WSJ What’s News.

The end of the bond hedge

The world’s biggest sovereign wealth fund, Norway’s oil fund, wants to cut the portion of its bond portfolio allocated to government debt from 70% to 50%. The head of the fund cited recent market volatility and argued that greater exposure to equities would boost returns and limit risk. The announcement follows a bond market rout that sent yields surging and rippled through global markets.

Ludovic Subran, chief investment officer at Allianz, said the selloff in U.S. Treasuries has been building for some time. “It’s a mix of soaring deficits, a Fed unfazed by inflation caused by the many friction points and wars,” he said. “Certainly the idea that you can tweak the markets, the interventionism, something that market actors don’t like.” He added that competition for capital from AI and uncertainty about whether the economy faces inflation or deflation have also been repricing bonds.