The Largest Wealth Fund in the World Got Hit by Rising Interest Rates. It Lost Tens of Billions in Q3.

Norway's sovereign wealth fund lost $30 billion in the third quarters, largely as a result of rising interest rates.

Norges Bank Investment Management (NBIM) noted that it lost 278 billion kroner after the global bond market soured over the past months.

Central banks, including the Federal Reserve, began hiking interest rates as concerns about inflation and public debt dominated the conversation.

"The fund's return was close to flat, ending slightly negative as rising interest rates led to weaker results on our fixed-income investments," said NBIM Deputy CEO Trond Grande in a statement.

CNBC noted that fixed income represents more than 25% of the fund's portfolio, which is invested in 1,664 bonds from 51 countries.

In fact, the fund said last month that it wants to sharply reduce its holdings of U.S. Treasurys as part of a wider overhaul of its bond portfolio, shifting more money toward corporate debt, mortgage-backed securities and other assets offering higher returns.

NBIM recommended reducing government bonds to 50% of its benchmark bond index from 70%. The change would gradually lower U.S. Treasurys from 34.1% to 21.9% of the fixed-income benchmark, while euro-area government bonds would fall from 16.8% to 14.1%, according to the fund's recommendation to Norway's Ministry of Finance.

The fund held about $215 billion in U.S. government debt at the end of June. The proposed rebalancing would substantially reduce that position, although the fund would remain heavily invested in U.S. assets because money shifted out of Treasurys would partly move into other American fixed-income securities.

U.S. government finances have also been under scrutiny after federal debt crossed $40 trillion for the first time in August. More than $32 trillion of that was debt held by the public, while federal interest costs have climbed above $1 trillion annually, according to Reuters, citing Treasury Department figures.

NBIM's proposal is not a broad retreat from U.S. assets. The fund wants to increase nongovernment U.S. fixed income to 27.6% from 16.2%, including corporate bonds and mortgage-backed securities. CEO Nicolai Tangen and Norges Bank Governor Ida Wolden Bache said in the recommendation that a 50% government-bond allocation would still provide sufficient liquidity in periods of market stress while giving the fund greater exposure to credit premiums.

The managers also recommended changing how government bonds are weighted. The current benchmark uses gross domestic product to determine country weights, while NBIM wants to move to market-value weighting. It said the change would make the benchmark easier to follow and better reflect developments in global bond markets.