Norway’s sovereign wealth fund, the world’s largest at $2.3 trillion, has proposed cutting its holdings of US government bonds as it seeks to diversify risk and boost returns elsewhere.
The heads of Norges Bank Investment Management wrote in a letter to the country’s finance ministry that they recommend reducing the government subindex of the fund’s bond holdings from 70% to 50%. That would gradually cut US Treasury holdings from 34.1% to 21.9%.
The proposed reallocation would also reduce euro area holdings from 16.8% to 14.1% and increase Japanese government bonds to 7.4% from 4.6%.
Why It Matters
The potential shift comes at a sensitive time for the Treasury market. Long-dated yields have pushed to decade-highs as investors fret over the US fiscal trajectory and its increasingly heavy debt load. US government debt recently passed the $40 trillion mark for the first time.
Mohamed El-Erian, the economist, told CNBC: “Reliable buyers and holders of US Treasurys are under pressure. The size isn’t big, but the signal that traditional holders and buyers are becoming less reliable is a very important one.”
The Fund’s Strategy
NBIM plans to increase its holdings of non-government US fixed income, such as corporate bonds, to 27.6% from 16.2%. It also wants to diversify into riskier assets, including mortgage-backed securities.
CEO Nicolai Tangen and Norway’s central bank chief Ida Wolden Bache said mortgage-backed securities tend to move in the opposite direction to equities during crises. This could provide an “additional reduction of volatility” more similar to government bonds than corporate bonds.
The fund currently holds around $1.65 trillion in equities — ownership of almost 1.5% of all shares in the world’s listed companies — and $592 billion in fixed income.
The Tech Risk
NBIM has made record profits in recent quarters from its huge investments in US and Asian tech firms and beneficiaries of the AI boom, such as semiconductor stocks. However, Tangen has warned those levels of returns will not be sustainable in a market downturn.
In the first quarter of 2025, the fund swung to a $40 billion loss as investors turned risk-off. A recent stress test found that an AI correction could wipe $740 billion, or 35%, off its value.
The Bottom Line
Norway’s $2.3 trillion sovereign wealth fund has proposed cutting its US Treasury holdings from 34.1% to 21.9% as part of a broader rebalancing to diversify risk and boost returns. The shift comes as US debt passes $40 trillion and long-term yields hit decade highs. The fund plans to increase holdings of corporate bonds and mortgage-backed securities. CEO Nicolai Tangen has warned that record profits from tech and AI investments may not be sustainable
