Norway’s $1 trillion sovereign wealth fund got the go-ahead to cut emerging market government and corporate bonds as part of an overhaul of its $310 billion fixed-income holdings.

The decision, announced on Friday by the Finance Ministry, comes after more than a year of deliberation. Bonds from Mexico, South Korea, Chile, the Czech Republic, Hungary, Israel, Malaysia, Poland, Russia and Thailand will be removed from the index, but the fund will still have leeway to invest up to 5 per cent of its bond portfolio in emerging markets.

The move doesn’t go quite as far as the initial proposal from the fund, which called for whittling its bond holdings down to just three currencies: the euro, the dollar and the pound. Big currencies such as the yen, the Australian and Canadian dollar and the Swedish krona were spared. The ministry also rejected the fund’s wishes to cut corporate bonds.

The proposal was made after the fund got approval to lift its stock holdings to 70 per cent of its portfolio. It has argued it makes little sense in owning government bonds across the world since they have become more correlated and that it’s also exposed to a wide array of currency risk through its ballooning stock holdings.

Reactions were muted in emerging markets.

“I understand this is a strategic decision,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “They change the benchmark. It’s not a sign that they get increasingly bearish on EM right now.”

He said that a shift of developed market central bank to “to a longer (perhaps permanent)” ultra-low interest-rate policy “should keep hunt for yields in general alive,” he said.

The specific changes and an implementation plan will be prepared in consultation with the fund after parliament’s deliberation of the white paper, the ministry said.