Norges Bank, which manages Norway’s Government Pension Fund Global (GPFG), one of the world’s largest sovereign wealth funds, with over $2.3 trillion of fund value, has recommended a sweeping change to how the fund holds government bonds, including US Treasuries.
In a letter to Norway’s Ministry of Finance, Norges Bank, the central bank of Norway, proposed cutting the government bond subindex of Norway’s sovereign pension fund’s bond benchmark from 70% to 50%.
Within that broader shift, exposure to US government bonds specifically is set to fall from 34.1% to 21.9% of the total bond benchmark index, a reduction of about 36% in relative terms once the new market-value weighting replaces the current GDP-based one.
Norges Bank’s advice is that securitized bonds (including mortgage-backed securities, so-called agency MBS) and government-related bonds should be included in the bond index.
It’s worth noting that the structure of agency MBS today is not exactly similar to what the market saw during the Global Financial Crisis. Agency MBS is today a standardised and liquid segment.
The segment was removed from the bond index in 2012. During the financial crisis, Norges Bank had exposure to private mortgage-backed securities through external mandates. These became illiquid and difficult to manage in that period.
Agency MBS would move from zero today to around 13% of the new benchmark, per the bank’s estimates, given their scale, an outstanding market of roughly $7,500 billion, and their close-to-sovereign credit quality through Fannie Mae, Freddie Mac and Ginnie Mae guarantees. Government-related bonds, covering supranationals, federal agencies and municipalities, would rise from about 4% to around 11% of the index.
The headline takeaway is directional rather than final: less concentration in plain US Treasuries, more spread across dollar-denominated mortgage and agency debt, all inside a fund whose Treasury holdings run into the hundreds of billions of dollars.
Why Reducing Exposure to US Treasury is Proposed
Norges Bank’s proposed cut to US Treasury exposure rests on two separate reasons working together. Together, a smaller overall government pie and a smaller US slice within that pie are what drive the Treasury weight down from 34.1% to 21.9%.
First, the bank wants to shrink the overall government bond share of the index from 70% to 50%, arguing that liquidity needs are already covered at a much lower level.
Second, on top of that broader cut, Norges Bank wants to replace GDP-based weighting with market-value weighting for whatever government bonds remain in the index. Since GDP weighting had been giving the US a larger share (48.1%) than its actual market weight would justify (43.4%).
Dropping GDP weighting shrinks the US figure further, on the reasoning that high government debt is now common across developed economies rather than a problem specific to a few countries, so GDP weighting no longer serves its original diversification purpose.
What A Lower Treasury Weight Means For The Dollar Bloc
As the US government bond share shrinks, it gets offset by a corresponding rise in other US dollar-denominated bonds, mainly mortgage-backed securities and government-related debt.
The dollar’s overall share of the bond index barely moves. Total US dollar exposure stays close to unchanged at around 50%, from 52.9% currently to 52.5% under the proposed index. What changes is the composition beneath that dollar exposure.
Why Are These Changes Being Proposed
Treasuries currently sit at the core of the fund’s liquidity and volatility-dampening strategy. Norges Bank’s own simulations show government bonds have had a negative co-movement with equities during crises, cushioning the portfolio precisely when markets turn.
The bank argues a 50% government share still leaves a comfortable margin over the fund’s estimated liquidity needs, even in stressed markets, so the diversification benefit isn’t seen as lost, just rebalanced.
The Cut Isn’t Final, Ministry Holds The Pen
The recommendation responds to a Ministry of Finance letter dated 25 February 2026, which had asked Norges Bank to reassess the roles bonds play in the fund and the structure of the benchmark index.
None of this takes effect automatically. Norges Bank’s letter is advisory. Norway’s Ministry of Finance has to weigh the recommendation, and a separate government-appointed expert group is still due to deliver its own broader report by 25 January 2027, one that could examine the fund’s purpose and risk tolerance in ways that might further influence how the bond index eventually looks.
Disclaimer: This article is based on Norges Bank’s official letter to Norway’s Ministry of Finance and publicly disclosed Norges Bank Investment Management (NBIM) fund data. It is for informational purposes only and should not be construed as investment advice.