Norway’s sovereign wealth fund, the world’s largest at $2.3 trillion, plans to reduce its holdings in government bonds, particularly U.S. Treasurys, as part of a strategy to diversify investments and improve returns. Norges Bank Investment Management (NBIM), which oversees the fund, has recommended lowering the government bonds’ share from 70% to 50%, including cutting U.S. Treasury exposure from 34.1% to 21.9%. The fund also intends to adjust its bond portfolio composition by increasing Japanese government bonds and employing market value weighting rather than GDP-based metrics.

This adjustment comes amid growing concerns over the U.S. fiscal situation and debt levels, which have pushed Treasury yields to decade highs, thereby affecting demand for U.S. government debt. Economist Mohamed El-Erian highlighted that traditional buyers like Japan, China, and Gulf countries are under pressure, making them less reliable as purchasers of Treasurys. NBIM’s move to decrease treasury holdings signals a shift in confidence among major institutional investors regarding the long-term attractiveness of U.S. government bonds.

Instead of government bonds, NBIM aims to increase investments in other U.S. fixed income assets, including corporate bonds and mortgage-backed securities. These mortgage-backed instruments, despite their negative reputation from the 2008 financial crisis, are viewed by NBIM’s leadership as having lower volatility and offering diversification benefits, moving oppositely to equities during market downturns. The fund’s executives believe these assets can deliver higher risk premiums over time while helping to stabilize the portfolio.

NBIM holds about $1.65 trillion in equities, with a significant focus on tech and AI-driven companies contributing to recent record profits. However, CEO Nicolai Tangen has cautioned that such high returns may not be sustainable in a downturn, as illustrated by a $40 billion loss in early 2025 during a market selloff. A stress test indicated that a correction in AI-related stocks could potentially cut the fund’s value by 35%, emphasizing the importance of the fund's strategic rebalancing efforts to mitigate future risks.