World's biggest sovereign wealth fund plans to cut U.S. Treasury holdings

• The reallocation would reduce U.S. Treasury holdings from 34.1% to 21.9% and increase non-government U.S. fixed income (corporate bonds, mortgage-backed securities) from 16.2% to 27.6%
• The fund currently holds $1.65 trillion in equities with heavy tech exposure; a recent stress test found an AI correction could wipe $740 billion (35%) off its value
• The proposal comes amid broader pressure on Treasury markets as traditional buyers like Japan, China, and Gulf countries reduce holdings due to concerns over U.S. fiscal trajectory

Summary: Norway Wealth Fund to Reduce U.S. Treasury Holdings

Norway's Government Pension Fund Global, the world's largest sovereign wealth fund with $2.3 trillion in assets under management, has proposed significantly reducing its U.S. Treasury holdings as part of a portfolio rebalancing strategy aimed at diversifying risk and enhancing returns.

Key Details

Norges Bank Investment Management (NBIM) recommended to Norway's finance ministry that it reduce government bonds from 70% to 50% of its fixed income portfolio. This would cut U.S. Treasury holdings from 34.1% to 21.9% and eurozone holdings from 16.8% to 14.1%. The fund plans to shift toward higher-yielding assets including corporate bonds (increasing to 27.6% from 16.2%) and mortgage-backed securities.

NBIM will also transition from GDP-based to market-value weighting for government bonds, citing high debt loads across developed economies.

Market Implications

The proposal comes at a critical juncture for U.S. Treasuries, which face mounting pressure amid concerns over America's fiscal trajectory. Economist Mohamed El-Erian noted that "reliable buyers and holders of U.S. Treasurys are under pressure," pointing to reduced demand from Japan, China, and Gulf states.

Fund Performance and Risk Exposure

The fund currently holds approximately $1.65 trillion in equities, representing nearly 1.5% of global listed stocks. It has achieved record profits recently, driven largely by investments in U.S. and Asian technology and AI-related stocks. However, CEO Nicolai Tangen has warned of significant concentration risk—a recent stress test indicated an AI market correction could erase $740 billion (35%) of the fund's value. The fund lost money in Q1 2025 during a risk-off period.