Norway’s $2.3 trillion Government Pension Fund Global, the world’s largest sovereign wealth fund, proposed on Friday cutting its U.S. Treasury holdings by roughly 40 percent as part of a broader reallocation aimed at boosting returns and reducing concentration risk in its heavily tech-weighted equity portfolio.
The fund’s manager, Norges Bank Investment Management (NBIM), recommended reducing government bonds within its bond index from 70 percent to 50 percent, with U.S. Treasuries taking the biggest hit. This would cut Treasury exposure from 34.1 percent to 21.9 percent of the fund’s bond holdings, translating to a reduction of approximately $80 billion from its current Treasury position of about $215 billion as of June 2026.
In a letter to Norway’s Finance Ministry published Friday, NBIM CEO Nicolai Tangen and Ida Wolden Bache, governor of Norway’s central bank, wrote that a 50 percent government bond allocation would “be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets” while freeing capital for higher-yielding assets. The fund plans to redirect money into non-government U.S. debt—corporate bonds and mortgage-backed securities—increasing that allocation from 16.2 percent to 27.6 percent.
The proposal also includes increasing allocations to Japanese government bonds, from 4.6 percent to 7.4 percent, while modestly reducing euro area holdings from 16.8 percent to 14.1 percent. NBIM said it would weight government bond holdings by market value rather than gross domestic product, citing the high debt loads of developed economies.
The move comes as U.S. Treasury markets face mounting pressure. Long-dated yields have climbed to decade-highs as investors worry over the U.S. fiscal trajectory and rising government debt, which recently surpassed $40 trillion. Economist Mohamed El-Erian told CNBC that “reliable buyers and holders of U.S. Treasurys are under pressure,” citing Japan, China, and Gulf countries. He said that while the size of Norway’s proposed reduction is not enormous in absolute terms, “the signal that traditional holders and buyers are becoming less reliable is a very important one.”
The fund’s proposal reflects broader concerns about its portfolio concentration. NBIM holds roughly 1.5 percent of all listed companies globally and has benefited enormously from record gains in U.S. and Asian tech stocks and artificial intelligence-related investments. However, a recent stress test by NBIM found that an AI market correction could wipe $740 billion, or 35 percent, off the fund’s value—a risk Tangen has warned is not sustainable if a market downturn occurs.
Tangen and Wolden Bache argued that mortgage-backed securities, despite their notorious role in the 2008 financial crisis, tend to move in the opposite direction to equities during crises and could provide “additional reduction of volatility” similar to government bonds. The fund currently holds around $1.65 trillion in equities and $592 billion in fixed income.
Any changes would be implemented gradually to minimize market impact and transaction costs. NBIM said it would await the ministry’s response, with formal recommendations expected in January as part of the fund’s annual white paper process next spring. Parliament will then hold a hearing before making a final decision.
The proposal follows a similar move by Europe’s largest pension fund, the Dutch ABP, which cut its U.S. Treasury holdings in the first quarter of 2026. The shift signals a broader recalibration among major institutional investors seeking to balance liquidity needs against the appeal of higher-yielding assets in a higher-rate environment.
Sources
- CNBC — reported the proposal, fund size, Treasury reduction percentages, NBIM’s rationale for mortgage-backed securities, the $740 billion AI correction stress test figure, and Mohamed El-Erian’s commentary on Treasury buyer pressure.
- Reuters — confirmed the $80 billion reduction in Treasury holdings, the 70-to-50 percent government bond reallocation, the shift to non-government debt and Japanese bonds, the gradual implementation timeline, and the Dutch ABP precedent.
- Financial Times — reported NBIM’s stress test findings and the fund’s concentration risk concerns related to tech equities.
