World's biggest wealth fund plans to cut government bonds, US Treasuries face $75 billion impact

Norway's Wealth Fund Proposes Major Shift in Bond Allocation Strategy to Boost ReturnsNorway’s sovereign wealth fund, the world’s biggest, proposed to reduce its allocation of government bonds in its $2.3 trillion portfolio as it plans to diversify its risk exposure and boost returns. The move is likely impact the US Treasury massively.

Government debt should be cut to 50% of the bond holdings from 70%, Norges Bank Investment Management said in a letter sent to the Ministry of Finance on Tuesday and published on its website on Friday. “The remaining portion of the bond allocation should provide exposure to more sources of risk premiums.”

However, there is yet no guarantee that the fund will be allowed to make the change.

With about 30% invested in bonds, the fund had more than $615 billion of fixed-income assets in its portfolio as of June 30, about 59.5% of which were invested in government bonds, according to the latest figures on its website. Adding in government-related bonds, the allocation is 69%.

The proposed reduction in government bonds’ share to 50% would imply a decrease of about $58 billion of such bonds, according to Bloomberg calculations.

While the proposed change implies holdings of US Treasuries would drop by $75 billion, those of Japanese government bonds could increase by $20 billion, Bloomberg analysis shows. Holdings of euro area government bonds are also projected to decrease.

Treasuries were little changed in London trading Friday after a week under pressure. The US 10-year yield topped 4.75% on Monday for the first time since January 2025 as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates. Investors have been grappling with worries over the size of the US government debt pile while gauging how aggressively the Fed will need to raise rates to fight inflation.

“It’s a step in the right direction, but would be more of a backroom decision, as it would not require the lengthy review and public approval process that changes to the overall debt-equity allocation typically entail,” said Karin Thorburn, a Norwegian School of Economics professor who has served on numerous committees related to the fund’s investment strategy.

“It’s the second-best option, because I think it would be better to adjust the overall portfolio allocation by increasing equities and reducing bonds,” she added.

State Secretary Ellen Reitan said the government will “address any proposals for adjustments to the investment strategy in the white paper on the fund, which will be presented to the parliament in the spring” after the Finance Ministry “will thoroughly review the recommendations,” in an emailed comment.

NBIM, founded in the early 1990s to invest Norway’s oil and gas wealth, has limited scope for active investing. Its holdings are spread across equities, fixed income, real estate, and renewable infrastructure, all outside Norway. Real estate is a growth area in its new strategy.

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