The world’s largest sovereign wealth fund has told Norway’s government it wants to significantly reduce how much of America’s debt it holds. It is a proposal rather than a done deal, but given the size of the fund making it, the mere suggestion has already rippled through bond markets watching closely for signs of who still wants to hold US government debt.
Norges Bank Investment Management, which runs Norway’s $2.3 trillion Government Pension Fund Global, sent a letter to the country’s Ministry of Finance on September 1 recommending that government bonds be cut from 70 percent to 50 percent of its fixed income benchmark. US Treasuries, the single largest holding within that portfolio, would absorb the biggest reduction, falling from 34.1 percent to 21.9 percent of the bond index. Reuters calculated that shift would mean offloading close to $80 billion of the fund’s roughly $215 billion in Treasury holdings as of the end of June.
The reduction is not simply an exit from American debt. NBIM plans to redirect much of that money into other US fixed income instruments, chiefly corporate bonds and mortgage backed securities carrying guarantees from Fannie Mae, Freddie Mac and Ginnie Mae, lifting its allocation to non-government US debt from 16.2 percent to 27.6 percent. The upshot, according to the fund, is that its overall exposure to the US dollar would barely move, slipping only from 52.9 percent to 52.5 percent. Euro area debt allocation would fall modestly too, from 16.8 percent to 14.1 percent, while Japanese government bonds would rise from 4.6 percent to 7.4 percent and the UK allocation would hold steady at 4.2 percent.
Norges Bank Governor Ida Wolden Bache and NBIM chief executive Nicolai Tangen framed the proposal around portfolio construction rather than any judgement on US fiscal policy specifically. Their letter argued that a 50 percent government bond allocation would still comfortably cover the fund’s liquidity needs, even during periods of serious market turbulence, while freeing up capital to chase higher returns elsewhere. The pair also proposed abandoning the fund’s traditional method of weighting government bonds by each country’s GDP, arguing that elevated sovereign debt has become so widespread among advanced economies that the approach no longer serves its original purpose of steering the fund away from the most heavily indebted issuers. Mortgage backed securities, they noted, tend to hold their value when equity markets fall, giving them a risk profile closer to government debt than to standard corporate bonds, which is part of why the fund is comfortable increasing its exposure there instead.
The proposal lands at a genuinely sensitive moment for the US Treasury market. Long dated yields have climbed to decade highs as investors weigh rising inflation against a national debt that has swelled to roughly $40 trillion, with the federal deficit on track to hit around $2 trillion this fiscal year. Economist Mohamed El-Erian told CNBC that the scale of Norway’s proposed shift is not itself large enough to move markets on its own, but that the signal behind it matters a great deal, since reliable buyers and holders of US Treasuries, including Japan, China and Gulf states, are increasingly showing signs of pulling back too.
Nothing changes immediately. NBIM said any adjustment would only follow the finance ministry’s response to the letter, with final recommendations expected to feed into a report due in January 2027, and any actual portfolio shift phased in gradually to limit market disruption and transaction costs. Realistically, changes would not begin until at least several months into 2027. Whether the world’s largest sovereign investor ultimately follows through at that scale remains, for now, a proposal rather than a settled course of action, though the fact that it was proposed at all is being read in bond markets as a meaningful signal in its own right.
