Norway’s $2.3T wealth fund proposes slashing US Treasury holdings

Norges Bank Investment Management, the arm of Norway's central bank that oversees the world's largest sovereign wealth fund, has proposed cutting its government bond allocation from 70% to 50% of its bond portfolio, with U.S. Treasuries bearing the brunt of the reduction. The move, outlined in a letter to Norway's finance ministry published Friday, would trim roughly $80 billion from the fund's current Treasury holdings of about $215 billion, according to Reuters.reuters

The proposal arrives amid a turbulent stretch for global government bond markets, with long-dated yields in several major economies climbing to multi-decade highs as investors weigh rising inflation and ballooning sovereign debt loads.

A Shift Toward Riskier Debt

Under the plan, the fund's bond index weighting to U.S. government debt would fall from 34.1% to 21.9%, while euro area holdings would decline more modestly from 16.8% to 14.1%. Japanese government bond exposure would rise from 4.6% to 7.4%, and UK allocations would hold steady at 4.2%.cnbc+1

To offset the reduction in sovereign debt, NBIM proposes a sharp increase in U.S. non-government fixed income — including corporate bonds and mortgage-backed securities — from 16.2% to 27.6% of the bond index. CEO Nicolai Tangen and central bank governor Ida Wolden Bache argued in the letter that a 50% government share "will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets". They noted that mortgage-backed securities tend to move inversely to equities during crises, offering diversification benefits closer to those of government bonds than corporate debt.reuters+1

A Warning Signal for Treasuries

The fund also proposed switching from GDP-weighted to market-value-weighted government bond allocations, citing the heavy debt burdens now carried by nearly all developed economies. Any changes would be implemented gradually to limit market impact, and NBIM said it would await the finance ministry's response.reuters+1

Economist Mohamed El-Erian, speaking at the Ambrosetti Forum in Cernobbio, Italy, told CNBC that while the fund's reallocation alone is modest in scale, "the signal that traditional holders and buyers are becoming less reliable is a very important one." He pointed to reduced appetite for Treasuries from China, Japan, and Gulf states alongside Norway's reassessment.cnbc+1

Broader Portfolio Pressures

The $2.3 trillion fund — which holds roughly 1.5% of all shares in the world's listed companies — has posted record profits in recent quarters driven by U.S. and Asian technology stocks and the AI boom. But it swung to a $40 billion loss in the first quarter of 2025 as markets turned risk-off, and a recent internal stress test found that an AI-driven correction could wipe $740 billion, or 35%, from the fund's value. In a separate letter, NBIM also proposed expanding into unlisted assets to reduce the concentration risk that has grown alongside surging tech valuations.cnbc+1