Norway’s sovereign wealth fund, the world’s largest, has proposed trimming the share of government bonds in its $2.3 trillion portfolio, a move that would primarily hit its U.S. Treasury holdings as it looks to diversify risk and improve returns.
Norges Bank Investment Management (NBIM), which manages the fund, sent a letter to Norway’s finance ministry that was made public on Friday. In it, the fund’s leadership recommended lowering the government subindex of its bond allocation from 70% to 50%, a level they said would still ensure sufficient liquidity during market turbulence while allowing the fund to chase higher returns elsewhere.
The plan would gradually cut NBIM’s Treasury holdings from 34.1% of fixed income to 21.9%, reduce euro area government bond exposure from 16.8% to 14.1%, and increase its allocation to Japanese government bonds from 4.6% to 7.4%.
The fund also wants to shift how it weights government bond holdings — moving from a GDP-based approach to one based on market value — citing the heavy debt loads carried by most developed economies.
Timing draws attention
The proposal comes at a delicate moment for the Treasury market, which has seen long-dated yields climb to decade highs amid investor concerns over the U.S. fiscal trajectory and its growing debt burden.
Economist Mohamed El-Erian told CNBC on Friday that “reliable buyers and holders of U.S. Treasurys are under pressure,” pointing to Japan, China and Gulf countries. While the size of NBIM’s proposed reduction is modest, El-Erian said “the signal that traditional holders and buyers are becoming less reliable is a very important one.”
NBIM also plans to increase its holdings of non-government U.S. fixed income, such as corporate bonds, to 27.6% from 16.2%.
Seeking higher premiums
CEO Nicolai Tangen and Norway’s central bank chief Ida Wolden Bache argued that the fund could earn higher premiums by diversifying into riskier assets such as mortgage-backed securities, which they believe are well-suited to a long-term investor. They noted that mortgage-backed securities — which gained notoriety during the 2008 financial crisis — tend to move in the opposite direction to equities during downturns, offering “additional reduction of volatility” that makes them more similar to government bonds than corporate bonds.
NBIM currently holds about $1.65 trillion in equities, representing almost 1.5% of all listed shares globally, and $592 billion in fixed income.
The fund, established in 1998 to invest Norway’s oil revenues with strict guardrails to preserve its longevity, has posted record profits in recent quarters, driven by large stakes in U.S. and Asian tech firms and beneficiaries of the AI boom, including semiconductor stocks. However, Tangen has cautioned that such returns are not sustainable if markets turn. In the first quarter of 2025, the fund swung to a $40 billion loss as investors retreated from risk.
A recent NBIM stress test found that a correction in AI-related stocks could erase $740 billion — or 35% — of the fund’s value.
Source: www.cnbc.com — https://www.cnbc.com/2026/09/04/worlds-biggest-sovereign-wealth-fund-plans-to-cut-treasury-holdings.html
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