Norway’s $2.3 trillion sovereign wealth fund has proposed a significant structural shift to reduce its holdings of U.S. Treasurys, aiming to diversify risk and seek stronger returns amid growing pressure on traditional government debt holders, according to financial sector reporting published Friday.
A sovereign wealth fund is rethinking the backbone of its fixed-income portfolio. Rather than leaning heavily on sovereign debt issued by major Western governments, Norges Bank Investment Management wants to scale back its government bond allocation significantly.
The proposed reallocation targets a reduction in the government subindex of its bond holdings from 70% down to 50%. Fund leadership argues that the adjustment maintains necessary liquidity for market turbulence while opening the door to higher-yielding opportunities elsewhere.
Reallocating Away From U.S. Treasurys and Into Riskier Fixed Income
If approved by the country’s finance ministry, the plan would gradually cut NBIM’s Treasury holdings from 34.1% to 21.9%. At the same time, the fund plans to trim euro area holdings from 16.8% to 14.1% while increasing its share of Japanese government bonds to 7.4% from 4.6%.
To make up for the retreat from sovereign debt, NBIM plans to increase its holdings of non-government U.S. fixed income, such as corporate bonds, to 27.6% from 16.2%. CEO Nicolai Tangen and central bank chief Ida Wolden Bache also pointed toward mortgage-backed securities as an attractive avenue for earning higher premiums.
Fund executives noted that mortgage-backed instruments tend to move in the opposite direction of equities during crises, offering a stabilizing counterbalance similar to government bonds.
Growing Pressures on Traditional Buyers of U.S. Government Debt
The proposed shift hits the U.S. debt market at a delicate juncture. Long-dated yields have climbed to decade-highs as investors grapple with the trajectory of the American fiscal path and heavy debt loads across developed nations.
Economist Mohamed El-Erian observed that Reliable buyers and holders of U.S. Treasurys are under pressure,
pointing to traditional institutional buyers like Japan, China, and Gulf nations.
“The size isn’t big, but the signal that traditional holders and buyers are becoming less reliable is a very important one.”
Mohamed El-Erian, Economist, via CNBC
Adding to the structural shift, NBIM also wants to begin weighting its government bond holdings by market value rather than GDP, a decision driven by the high debt loads carried by nearly all developed economies.
Weighing Record Tech Profits Against Potential Market Corrections
The sovereign wealth fund was originally established in 1998 to invest revenues from Norwegian oil under strict guardrails designed to preserve its long-term financial health. In recent quarters, it has harvested record profits from massive stakes in U.S. and Asian technology firms, along with semiconductor plays tied to the artificial intelligence boom.
Yet, leadership remains cautious about the permanence of those gains. Tangen has warned that current return levels are unsustainable if a broader market downturn takes hold.
The volatility is already visible in past performance. During the first quarter of 2025, the fund swung to a $40 billion loss as investors rapidly shifted to a risk-off posture. Furthermore, a recent internal stress test revealed that an AI-driven market correction could erase $740 billion—representing 35%—from the fund’s total value, underscoring the urgent motivation behind the proposed pivot away from traditional risk concentrations.
