Norway’s $2.3T Wealth Fund Cuts US Treasury Holdings by $75B

Norges Bank Investment Management, which oversees Norway’s $2.3 trillion sovereign wealth fund, proposed on Friday reducing its government bond allocation to 50% from 70%, a move that would slash US Treasury holdings by approximately $75 billion. The fund seeks higher returns by shifting into riskier assets like corporate bonds and mortgage-backed securities. The proposal signals that even the world’s most reliable Treasury buyer is reconsidering its exposure to US debt.

Why the world’s largest wealth fund is stepping back from US Treasuries

Norges Bank Investment Management wrote to Norway’s Finance Ministry that reducing government bonds to 50% of its fixed-income benchmark would still provide sufficient liquidity during market stress while freeing capital for better returns. The fund currently holds more than $615 billion in fixed-income assets, about 59.5% in government bonds. Shifting to 50% would mean cutting roughly $58 billion in government bonds overall, with US Treasuries dropping from 34.1% to 21.9% of the portfolio.

The broader signal to the Treasury market

Economist Mohamed El-Erian told CNBC that while the dollar amount is not enormous, the signal matters greatly. “Reliable buyers and holders of US Treasurys are under pressure,” El-Erian said, citing Japan, China, and Gulf countries as traditional holders now facing constraints. Long-dated US Treasury yields hit decade highs this week, topping 4.75% on Monday as investors worry about the US fiscal trajectory and rising debt loads. The fund’s leadership emphasized that traditional bond buyers are becoming less reliable, a shift that could pressure yields further if others follow.

Where Norway’s fund plans to redeploy the capital

The fund intends to increase non-government US fixed-income holdings, such as corporate bonds, to 27.6% from 16.2%. It also plans to boost Japanese government bond holdings to 7.4% from 4.6%, and reduce euro area government bond holdings from 16.8% to 14.1%. CEO Nicolai Tangen and Norway’s central bank chief Ida Wolden Bache said mortgage-backed securities offer higher premiums and are well positioned to reduce volatility during crises. The fund also proposed weighting government bond holdings by market value instead of gross domestic product, reflecting the high debt loads across developed economies.

What this means for investors and markets

The reallocation underscores growing unease about US fiscal sustainability among sophisticated institutional investors. For bond investors, the shift could add downward pressure on Treasury prices and upward pressure on yields if other major holders follow suit. For equity and corporate bond investors, the move signals confidence in riskier assets and suggests the fund sees value in mortgage-backed securities and corporate debt despite economic uncertainty. Singapore investors exposed to US fixed-income markets should monitor whether other large holders announce similar rotations.

Final Thoughts

Norway’s proposal to cut US Treasury holdings by $75 billion reflects a fundamental shift in how the world’s largest sovereign wealth fund views US debt risk. The move signals that even the most reliable Treasury buyers are reconsidering their exposure, a warning sign for markets already grappling with decade-high yields and fiscal concerns.

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