Norges Bank Proposes Cutting Government-Bond Weight to 50%, Reducing Treasury Exposure

Key Facts

Norges Bank, which manages the Government Pension Fund Global, recommended a redesign of the fund’s bond benchmark in a September 1, 2026 submission to Norway’s Finance Ministry. The proposal would cut the government-bond weight to 50% from 70% and raise the allocation to other bonds to 50%.

The largest reallocation would occur within dollar-denominated debt. Under the proposal, the U.S. government-bond weight would fall to 21.9% from 34.1%, while U.S. non-government debt would rise to 27.6% from 16.2%. The overall dollar weight would edge down only to 52.5% from 52.9%, making this primarily a shift away from Treasurys rather than from dollar assets generally.

Norges Bank proposes adding securitized bonds, consisting mainly of agency mortgage-backed securities, as well as government-related debt. Mortgage-backed securities would account for about 13% of the recommended index, up from 0%, while government-related bonds would rise to about 11% from about 4%.

The bank also recommends replacing GDP-based weights for government bonds with market-value weights and moving the benchmark closer to the Bloomberg Global Aggregate for developed markets. Emerging-market bonds would remain excluded, while inflation-linked government bonds would be retained.

Norges Bank argues that a broader allocation would provide better diversification and exposure to more sources of risk premia. Its analysis indicates marginally higher expected return and marginally lower volatility, while a 50% government-bond allocation would still be sufficient to meet liquidity needs during periods of market stress.

The proposal involves trade-offs. Mortgage-backed securities carry prepayment risk, and the associated return premium may fluctuate or fail to materialize. Reducing the government-bond share would also make the fixed-income portfolio less liquid than under the current structure.

The fund’s first-half 2026 results illustrate the scale involved: fixed-income investments stood at NOK 5.860 trillion, equal to 25.8% of the fund as of June 30, 2026. The United States, Japan and Germany were its three largest government-bond markets.

The recommendation is not an approved mandate change and does not signal immediate selling. The Finance Ministry must first take a position, after which Norges Bank would submit a detailed implementation plan. The bank says any transition to a new benchmark should be gradual to limit market impact and transaction costs.