Norwegian Oil Fund Proposes Adjusting Bond Benchmark or Reducing U.S. Treasury Holdings
The Norwegian central bank's investment management company has proposed to the Treasury to adjust the bond benchmark for the global government pension fund, suggesting that the proportion of government bonds in the bond index be reduced from 70% to 50%, and weighted by market value instead of GDP. If approved, the adjustment will be implemented in phases and is still a policy arrangement, not an executed sell order.
The fund has a size of approximately $2 trillion to $2.3 trillion, with stocks accounting for about 72.1% and bonds about 26.5% as of the end of June. Based on the bond portfolio size at that time, the government bond sub-index would be reduced by 20 percentage points, involving about 1.22 trillion Norwegian krone in bonds, equivalent to around €100 billion. After changing the weighting of government bonds from economic size to market value, the share of U.S. Treasuries in the government bond sub-index will decrease from 48.1% to 43.4%, while the share of Japanese government bonds will rise to 15.9%, and there will be slight increases in eurozone and UK government bonds. The market estimates that the reduction in U.S. Treasuries could reach about $80 billion, but this still depends on whether the Treasury adopts the proposal and the pace of implementation.
President Ida Wolden Bache and CEO Nicolai Tangen stated in a letter that lowering the proportion of government bonds can still cover liquidity during turbulent times and increase risk premiums and diversification; they suggested reallocating the released quota to mortgage-backed securities and government-related debt. By the end of 2025, the fund is expected to hold about $199 billion in U.S. Treasuries, accounting for 9.4% of total investments; data from the U.S. Treasury's International Capital shows that Norway held about $203.2 billion in U.S. Treasuries by the end of June 2026. In previous years, the holdings of U.S. Treasuries had continuously increased due to mandatory rebalancing, despite management's public concerns about high government debt levels.
This is different from Finance Minister Jens Stoltenberg's statement to the Financial Times in April, where he clearly stated there were no plans to reduce exposure to the U.S. market, as the dynamics of the U.S. stock market sufficiently explain about half of the assets being in the U.S. This change targets the internal structure of bonds, not an overall exit from U.S. stocks. The fund also again suggested to the Treasury to increase non-listed assets to reduce the political and market risks associated with an overly concentrated stock index.
The buyers will be Japanese and eurozone government bonds and institutional mortgage-backed securities that need to fill the benchmark gap; the sellers will be U.S. Treasury accounts that passively track the old benchmark. The event is driven by expectations of benchmark revisions rather than a sudden diplomatic sell-off. If the Treasury approves, long-term U.S. Treasuries will be under pressure, while Japanese bonds and supranational agency bonds will benefit; before approval, what is traded is the possibility premium.
Source: Public Information
ABAB AI Insight
The Norwegian Oil Fund operates under the authorization of the Treasury, with about 70% in stocks and 30% in bonds. The government bond sub-index has long been weighted by GDP, which means that despite high debt levels in developed countries, it still over-allocates to U.S. Treasuries based on economic size. Nicolai Tangen emphasizes that high sovereign debt is a common phenomenon while writing that stress tests indicate a regional debt crisis could lead to a 30% loss for the fund. The proposal to cut government bonds from 70% to 50% and change to market value weighting translates concerns about U.S. finances into executable index rules, avoiding being interpreted as a political reduction of U.S. exposure.
Funds are not leaving dollar assets overall. The U.S. remains the core benchmark for stocks, with the seven largest companies previously accounting for over 15% of stock holdings. The ethics committee's suspension is precisely to avoid being forced to sell Amazon, Microsoft, or Alphabet. Reducing government bonds while increasing agency bonds and mortgage-backed securities is merely a swap within the same dollar financial system: holding less duration issued by the Treasury while holding more spread related to housing and government-supported agencies. The motivation is to increase risk premiums while retaining a liquid bond base during crises.
This is analogous to the Japanese Government Pension Investment Fund adjusting the weights of domestic and foreign bonds, as well as sovereign accounts like Saudi Arabia reducing their U.S. Treasury exposure and buying agency bonds and stocks instead. Norway is at a stage where "U.S. exposure cannot be politically reduced, and the bond structure must be technically rewritten," representing a self-correction of index funds rather than a strategic decoupling.
Structurally, this represents a transfer of pricing power. The mechanism is: when high debt becomes a commonality among developed countries, GDP weighting will systematically over-allocate to the countries that issue the most debt; after changing to market value weighting, pricing power shifts back from the speed of fiscal expansion to the stock and liquidity of bonds. If about $80 billion in U.S. Treasuries is sold off over the years, the impact will be on the marginal buyer structure, not the fund's survival; what truly changes is who must fill this official demand at the auction.
ABAB News · Cognitive Law
Reducing holdings can be framed as adjusting the benchmark, not as a political declaration.
Concerns about finances lead to changing weights before adjusting holdings.
The power of index funds is hidden in the percentages of sub-indices.