Norway’s proposed cut comes as Washington faces rising deficits and shrinking demand for its debt
Norway’s $2.3 trillion sovereign wealth fund could sharply reduce its holdings of US Treasuries under a proposed overhaul aimed at boosting returns through other types of debt, the institution has announced. The shift could cut its Treasury allocation by almost $80 billion, according to Financial Times estimates.
Norges Bank Investment Management (NBIM), which manages the world’s largest sovereign wealth fund, recommended in a letter to Norway’s Finance Ministry on Tuesday that government debt be cut from 70% to 50% in its fixed-income portfolio. The change would reduce its global government bond allocation by about $106 billion, with most of the reduction falling on US Treasuries, the FT calculated.
NBIM said a 50% government bond allocation would still be enough “to cover the liquidity needs” during periods of market turbulence, while the remainder would provide exposure to “more sources of risk premiums.”
Under the plan, US Treasuries would fall from 34.1% to 21.9% of the fund’s bond benchmark. Much of the money would rotate into higher-yielding non-government US debt, including mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
“The reason behind this change is to achieve a diversification of return sources,” an NBIM spokesperson told the FT. Any changes would be introduced gradually to limit market disruption and transaction costs.
The allocation away from government debt comes at a time when government bonds have been selling off across leading economies, pushing yields in many cases to multi-year highs.
The proposed cut, although not significant relative to the size of the US Treasury market, signals a further shift at the margins away from US debt. This comes as rising deficits are forcing the US to issue more debt while foreign buyers have shown less appetite for Treasuries.
Economist Mohamed El-Erian told CNBC on Friday that Norway’s move matters less for its size than for the signal it sends. “The size isn’t big, but the signal that traditional holders and buyers are becoming less reliable is a very important one.”
Long-term Treasury yields are already at multi-year highs as rising government debt and inflation concerns have pushed investors to demand higher compensation.
Last month, meanwhile, Treasury Secretary Scott Bessent announced that the Treasury would at least double its buyback operations of long-dated USTs. Although framed as a mere liquidity operation, the move was widely interpreted as an attempt to bring long-dated yields down. It came shortly after the 30-year yield reached its highest level since 2007.
The Norwegian proposal is not yet final. NBIM described it as “advice” that will feed into broader recommendations to the Finance Ministry, with the government expected to submit its final proposals to parliament in spring of 2027.
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