The manager of the world’s largest sovereign wealth fund has proposed cutting its US Treasury holdings by roughly $80 billion, a shift that lands on a Treasury market already testing multiyear highs. Norges Bank Investment Management made the recommendation in a letter to Norway’s finance ministry, published this week, as part of a broader plan to reduce the government bond share of its fixed income portfolio and chase higher returns elsewhere.
What the fund proposed
NBIM, which manages the $2.3 trillion fund built on Norway’s oil revenue, wants the government subindex of its bond benchmark reduced from 70 percent to 50 percent. Under the proposal, the weighting to US government bonds would fall from 34.1 percent to 21.9 percent, cutting the fund’s Treasury holdings from about $215 billion at the end of June by roughly $80 billion. Euro area debt would fall more modestly, from 16.8 percent to 14.1 percent, a cut of around $17 billion, while Japanese government bonds would rise from 4.6 percent to 7.4 percent, an increase of about $17 billion. The UK allocation stays unchanged at 4.2 percent.
The freed-up allocation would go mostly into non-government debt, including mortgage-backed securities that the fund removed from its bond index in 2012. NBIM argued that the segment has since become standardized and liquid, and that agency-backed bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae carry credit quality close to US government debt. During the 2008 financial crisis, the fund found exposure to illiquid private mortgage-backed securities hard to manage, a memory that shaped its conservative posture for over a decade.
The letter, signed by Norges Bank governor Ida Wolden Bache and NBIM chief executive Nicolai Tangen, also proposed weighting government bond holdings by market value instead of GDP, on the argument that high public debt is now common across nearly all developed economies rather than confined to a few. The fund said a 50 percent government share would still be enough to cover its liquidity needs, including in periods of turbulence in financial markets.
| Allocation | Current | Proposed | Change |
|---|---|---|---|
| Government bonds overall | 70% | 50% | -20 points |
| US Treasuries | 34.1% | 21.9% | about -$80 billion |
| Euro area debt | 16.8% | 14.1% | about -$17 billion |
| Japanese government bonds | 4.6% | 7.4% | about +$17 billion |
| UK gilts | 4.2% | 4.2% | unchanged |
Why the timing is awkward
The proposal arrived as the 10-year Treasury yield climbed above 4.75 percent, its highest since January 2025, and the 30-year touched 5.3 percent in August. Long-dated yields have been pushed up by worries over the US fiscal trajectory, renewed inflation pressure from the Middle East conflict and heavy government borrowing. Annual US interest payments have passed $1 trillion, more than the defense budget, and public debt now exceeds 125 percent of GDP.
NBIM said holding more government debt than the 50 percent level represents an implicit cost in the form of lower expected return. The fund is waiting for the ministry’s response, and any change would be phased in gradually to limit market impact and transaction costs. Nothing has been sold yet; this is a recommendation about the benchmark the portfolio tracks, not a fire sale.
The size of the shift is modest against the scale of the Treasury market, where daily trading runs into the hundreds of billions of dollars. The signal is what matters more. Mohamed El-Erian told CNBC that the size is not big but that the signal, traditional holders becoming less reliable, is a very important one, pointing to pressure on buyers from Japan, China and the Gulf states.
“The size isn’t big, but the signal that traditional holders and buyers are becoming less reliable is a very important one,” economist Mohamed El-Erian told CNBC.
A pattern, not an outlier
Norway is not acting alone. Dutch pension fund ABP, Europe’s biggest pension fund, cut the value of its US Treasury holdings in the first quarter of this year, Reuters has reported. The direction of travel among large long-term holders has been away from Treasuries and toward assets with better expected returns, at exactly the moment the US needs steady demand at auctions to fund widening deficits.
NBIM also suggested, in a separate letter, increasing investments in unlisted assets, partly to reduce concentration risk that has built up in its equity portfolio during the boom in a handful of US technology stocks. Under its current mandate the fund can own unlisted real estate and renewable energy assets, but it holds a lower share of unlisted investments than comparable funds.
The fund currently holds around $1.65 trillion in equities, with fixed income just under 26 percent of total assets. It had a market value of 22.683 trillion Norwegian kroner, about $2.44 trillion, as of June 30, a period that produced record profits on the equity side. That performance makes the bond review easier to sell politically: the equity book has carried returns, so the fixed income sleeve can afford to reach for yield.
What happens next
The finance ministry must now respond, and the pace of any reallocation depends on its answer. NBIM has framed the change as gradual, which means the $80 billion Treasury reduction, if approved, would spread over quarters rather than weeks. Primary dealers and auction watchers will track the fund’s activity at long-bond auctions for evidence the shift has started.
The deeper question the letter raises is about the marginal buyer of US debt. Foreign official holders have been shrinking as a share of the Treasury market for years, and each large institutional review that lands on the side of less Treasuries adds to the pressure. Norway’s fund is one buyer with a long horizon and a public mandate, which makes its reasoning unusually visible. Other funds making the same calculation do so quietly.
Tangen and Bache argue the fund can earn higher premiums by diversifying into riskier debt while keeping enough liquidity to act as a stabilizing buyer when markets seize. Whether the ministry accepts, and how fast the Treasury allocation actually drifts down, will be watched closely by desks that already worry about who buys the next decade of US debt.