LONDON, Sept 4 (Reuters) - The manager of Norway’s $2.3 trillion sovereign wealth fund has proposed significantly cutting its exposure to U.S. Treasuries as part of a wider shake-up of its bond investments to improve returns, according to a letter published this week.
Norges Bank Investment Management has recommended reducing its weighting to government bonds within its benchmark bond index to 50% from 70%, with U.S. Treasuries, the biggest holding, getting the biggest cut, according to the letter.
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The changes would mean cutting nearly $80 billion from the fund’s current holdings of about $215 billion of U.S. Treasuries as of the end of June, according to Reuters calculations.
Government bond markets have been under pressure recently, with long-term borrowing costs soaring as rising inflation and government debt levels spooked investors.
Norway’s sovereign wealth fund, the world’s largest, owns on average 1.5% of all listed companies globally. Its scale means that portfolio decisions can influence broader market flows. Any cuts to its bond holdings are unlikely to be implemented until several months into 2027 at the earliest.
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Nicolai Tangen, chief executive officer of Norges Bank Investment Management, at the Arendalsuka conference in Arendal, Norway, on Wednesday, Aug. 13, 2025. Photographer: Carina Johansen/Bloomberg via Getty Images Bloomberg via Getty Images
The letter containing the fund’s proposals was sent in response to questions from Norway’s finance ministry about the wealth fund’s investment strategy for bonds.
Norges Bank IM said it would await the ministry’s response, and any changes would be done gradually to limit market impact and transaction costs.
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The proposals will form part of recommendations to the ministry in January. They will be discussed as part of the fund’s annual white paper process next spring, after which the ministry will make a final recommendation to parliament which will then hold a hearing, a Norges Bank IM spokesperson said.
“We recommend that the government subindex of the bond index be reduced from 70% to 50%,” Ida Wolden Bache, governor of Norges Bank, and Norges Bank IM CEO Nicolai Tangen wrote in the letter.
“A government share of 50% will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets.”
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The fund also proposed considering an increase in investments in unlisted assets in a separate letter, in part as a way to reduce concentration risks that have grown in its equity portfolio amid the boom in the share prices of a handful of U.S. tech companies.
Under its current mandate the fund can own unlisted real estate and renewable energy assets, but it has a lower share of unlisted investments than comparable funds.
U.S. Secretary of the Treasury Scott Bessent speaks to reporters at the White House, Wednesday, Nov. 5, 2025, in Washington. (AP Photo/Allison Robbert) via Associated Press
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Norges Bank IM said the biggest change to its bond index would be investing in more non-government debt, including mortgage-backed securities, to give it better diversification and exposure to risk premiums.
The spokesperson said total U.S. dollar exposure would remain around 50%, adding: “What changes is the mix inside the dollar market: less U.S. government debt, correspondingly more U.S. mortgage and government-related bonds.”
Under the proposals, the bond index weighting to U.S. government bonds would reduce from 34.1% to 21.9%, according to the letter, with the allocation to euro area debt falling more modestly from 16.8% to 14.1%.
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The allocation to Japanese government bonds would increase from 4.6% to 7.4%, while the UK allocation would remain unchanged at 4.2%. The fund said the changes would align the index more closely with the broader market weightings.
While U.S. Treasuries exposure would fall, the proposed allocation to U.S. non-government debt would jump from 16.2% to 27.6%, meaning that the overall bond index’s weighting to the U.S. dollar would fall only slightly, from 52.9% to 52.5%.
Europe’s biggest pension fund, Dutch fund ABP, cut the value of its own U.S. Treasury holdings in the first quarter of this year, Reuters previously reported.
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