Norwegian Wealth Fund planning to reduce U.S. Treasury holdings, potentially impacting broader financial markets.
Macro & Markets ·
Norway's sovereign wealth fund has proposed a significant reallocation of its $2.3 trillion portfolio, planning to reduce U.S. Treasury holdings as a share of its bond allocation. In a letter to Norway's finance ministry, Norges Bank Investment Management recommended cutting government bonds from 70% to 50% of its fixed-income holdings, which would lower U.S. Treasury exposure from 34.1% to 21.9% while increasing Japanese government bond holdings and reducing euro area debt positions. The fund simultaneously plans to boost non-government U.S. fixed income, including corporate and mortgage-backed securities, from 16.2% to 27.6% in pursuit of higher returns.
The timing carries weight for Treasury markets already under strain from decade-high long-dated yields and investor concerns over U.S. fiscal sustainability. Economists have flagged that traditional major holders—including Japan, China, and Gulf nations—face mounting pressure to rebalance, and as one noted to CNBC, while the Norwegian fund's reduction alone is modest in scale, the signal that reliable Treasury buyers are diversifying away carries broader implications for the debt market.
NBIM leadership argues mortgage-backed securities and other riskier fixed-income assets can deliver premium returns over the long term while offering volatility benefits similar to government bonds during market stress. The fund has recently faced headwinds—recording a $40 billion loss in Q1 2025 and internal estimates suggesting an AI market correction could remove up to $740 billion from its value—making the case for diversification, though formal approval of the proposal remains pending.