Norway’s $2.3 trillion sovereign wealth fund has proposed a significant reduction in its allocation to government bonds, with U.S. Treasurys set to bear much of the cut, as the world’s largest sovereign investor seeks to diversify its portfolio, limit concentration risks and improve long-term returns.

The heads of Norges Bank Investment Management (NBIM), which manages the fund, recommended in a letter to Norway’s Finance Ministry made public Friday that the government bond component of its fixed-income portfolio be reduced from 70% to 50%.

NBIM said a 50% allocation would still provide sufficient liquidity during periods of severe market stress while giving the fund greater scope to invest in assets offering higher returns. Under the proposed changes, the fund’s allocation to U.S. Treasurys would fall from 34.1% to 21.9%, while its euro-area government bond allocation would decline from 16.8% to 14.1%. Its holdings of Japanese government bonds, meanwhile, would rise to 7.4% from 4.6%.

The proposal comes at a particularly sensitive moment for the U.S. government bond market, where long-dated Treasury yields have climbed to decade-high levels as investors reassess the sustainability of U.S. fiscal policy, rising government debt and the ability of traditional buyers to absorb the growing supply of Treasurys.

The move by Norway’s fund does not amount to a wholesale retreat from U.S. fixed income. Instead, NBIM plans to redirect a substantial portion of its bond allocation toward nongovernment securities, including corporate debt and mortgage-backed securities.

Its allocation to nongovernment U.S. fixed income would rise to 27.6% from 16.2%.

Mohamed El-Erian, the economist and Allianz chief economic adviser, said Friday that the significance of the Norwegian fund’s decision extends beyond the amount of Treasurys it may ultimately sell.

“Reliable buyers and holders of U.S. Treasurys are under pressure,” El-Erian told CNBC’s Carolin Roth, pointing to Japan, China and Gulf countries as examples of traditional holders facing changing economic or geopolitical incentives.

Addressing Norway’s proposed reduction in Treasury holdings, El-Erian said: “The size isn’t big, but the signal that traditional holders and buyers are becoming less reliable is a very important one.”

The concern for the Treasury market is therefore less about the immediate impact of one investor and more about what happens if several large foreign holders simultaneously become less willing to increase their exposure to U.S. government debt.

NBIM said its proposed changes are also designed to address a structural problem in the way its government bond portfolio is allocated. The fund wants to move away from weighting sovereign debt primarily according to countries’ gross domestic product and instead use market-value weighting.

The change reflects the fund’s assessment that high debt burdens have become widespread across developed economies, making GDP-based allocations difficult to justify from a portfolio-risk perspective.

NBIM chief executive Nicolai Tangen and Norges Bank Governor Ida Wolden Bache also argued that the fund could capture higher risk premiums by expanding into assets such as mortgage-backed securities.

Mortgage-backed securities, which became synonymous with systemic risk during the 2008 global financial crisis, could offer the Norwegian fund a different risk profile because they have historically tended to behave differently from equities during periods of market stress.

Tangen and Wolden Bache said that characteristic could provide an “additional reduction of volatility,” making mortgage-backed securities more comparable to government bonds in a diversified portfolio than conventional corporate bonds.

Analysts see the strategy as a reflection of the unusual position occupied by Norway’s sovereign wealth fund. Because it invests with a very long time horizon and does not face the same liquidity requirements as many private investors, NBIM can tolerate some assets that may be less liquid or more volatile in normal markets in exchange for potentially higher long-term returns.

The fund currently holds about $1.65 trillion in equities and $592 billion in fixed-income assets. Its equity portfolio gives it ownership of almost 1.5% of all listed companies globally, making NBIM one of the most influential institutional investors in international markets.

Established in 1998 to invest Norway’s oil and gas revenues, the fund was designed with strict investment rules intended to preserve the wealth generated from the country’s natural resources for future generations.

Its enormous equity exposure has benefited from the powerful rally in U.S. and Asian technology stocks and companies positioned to profit from the artificial intelligence investment boom. Those gains, however, have also increased the fund’s exposure to a potential reversal in some of the market’s most crowded trades.

Tangen has repeatedly warned that the extraordinary returns generated by technology and AI-related assets should not be expected to continue indefinitely.

That vulnerability was demonstrated in the first quarter of 2025, when the fund recorded a loss of about $40 billion as investors rapidly reduced exposure to riskier assets. NBIM’s own stress testing also highlights the scale of the risk. A severe correction in artificial-intelligence-related assets could reduce the value of the fund by an estimated $740 billion, equivalent to about 35% of its portfolio.

Against that backdrop, the proposed bond reallocation represents more than a tactical adjustment to government debt. It is largely seen as part of a broader attempt to build a portfolio capable of absorbing large shocks while reducing reliance on any single asset class or sovereign issuer.

For the U.S. Treasury market, however, the decision comes with an important message. The world’s largest pools of capital are becoming more sensitive to the combination of elevated government debt, increased bond issuance and changing risk-return calculations.

Norway’s fund is not proposing to abandon Treasurys, which remain among the world’s most liquid and important safe-haven assets. But its decision to reduce their weight while increasing exposure to other forms of fixed income illustrates how even the most conservative institutional investors are reassessing the role of government bonds in a world of higher debt and potentially higher long-term yields.

The implication for Washington is significant because as public debt and Treasury issuance expand, the government may have to compete for capital with corporate borrowers and other assets offering investors higher returns. That could keep pressure on long-term borrowing costs even if inflation and short-term interest rates eventually moderate, making the Treasury market increasingly sensitive not only to Federal Reserve policy but also to the portfolio decisions of the world’s largest institutional investors.

Igor Sechin, chief executive of Russia’s largest oil producer Rosneft and one of President Vladimir Putin’s most influential energy allies, said China has taken on a greater role in stabilizing global oil markets by sharply reducing its crude imports this year, arguing that Beijing’s influence is increasingly rivaling that of OPEC.

Speaking Thursday at a Russian-Chinese business forum in Vladivostok, Sechin said China had reduced its oil imports by 5.5 million barrels per day this year, a decline he said had helped absorb excess supply and stabilize prices without Beijing being part of any formal producers’ cartel.

“This year, China has effectively taken the lead from OPEC and, without being a member of any cartel, has managed to stabilize the global oil market by cutting its oil imports by 5.5 million barrels per day,” Sechin said.

The comments reflect Sechin’s long-standing skepticism toward OPEC-led production management and his broader argument that the balance of power in global energy markets is shifting toward major consumers with large strategic reserves and growing control over demand.

China is the world’s largest oil importer, making changes in its purchasing patterns highly consequential for producers from Russia and the Middle East to Africa and the Americas. A sustained reduction in Chinese buying can weaken global demand for seaborne crude, increase competition among exporters and put downward pressure on prices.

Sechin said China’s growing strategic petroleum reserves could further increase Beijing’s influence over the international energy market.

“I believe that further growth in China’s reserves will strengthen China’s role in the energy market, against a backdrop of OPEC’s waning influence and a reduction in the number of its members,” he said.

His argument points to an important change in the traditional structure of the oil market. OPEC and its wider OPEC+ alliance have historically exercised their greatest influence through the supply side, adjusting production to manage prices and prevent severe market imbalances. China, by contrast, can exert influence through the demand side because of the enormous volume of crude required by its refineries and the scale of its strategic inventories.

The development has caught Russia’s attention.

China has become a critical destination for Russian crude following Moscow’s invasion of Ukraine and the subsequent Western sanctions that sharply reduced Russia’s access to European energy markets. Russian producers have consequently become more dependent on Asian buyers, particularly China and India, to sustain export volumes.

The situation has given changes in Chinese purchasing behavior an outsized impact on Russian oil companies. If Chinese refiners reduce imports for an extended period, Russian producers could face greater pressure to discount their crude or redirect cargoes to other markets.

Sechin’s comments also carry a commercial dimension for Rosneft, whose business depends heavily on maintaining access to major Asian markets as Western sanctions continue to constrain Russia’s traditional energy trade.

At the same time, China’s lower imports do not necessarily mean that global oil consumption has fallen by the same amount. Import volumes can fluctuate because of domestic production, refinery maintenance, changes in commercial inventories and the use of crude already held in storage.

China has spent years building strategic and commercial petroleum inventories, giving its refiners greater flexibility over when they purchase crude from international markets. When inventories are high, refiners can reduce imports without necessarily reducing refinery activity immediately. That makes China’s stockpiling strategy an increasingly important variable for oil traders and producers.

Sechin’s assessment also comes as OPEC’s influence faces questions of its own. The producer group and its allies remain capable of affecting global supply through coordinated production policies, but maintaining discipline across a large alliance becomes more difficult when individual members have competing fiscal needs and incentives to maximize output.

The United Arab Emirates announced earlier this year that it would withdraw from OPEC, adding to concerns about the cohesion and future influence of the producer group. The broader issue is whether oil-market power is gradually moving away from a model dominated by producers toward one in which major consumers and their inventories play a greater role.

China’s importance in that transition is difficult to ignore. Its massive refining sector, expanding strategic reserves, and position as the world’s largest crude importer give Beijing several ways to influence the market without formally coordinating production with oil-exporting countries.

For Russia, however, energy experts believe that China’s growing influence presents both an opportunity and a vulnerability. Beijing provides a crucial market for Russian crude and has helped Moscow maintain oil export flows despite Western restrictions. But greater dependence on a single major buyer also leaves Russian producers more exposed to Chinese purchasing decisions and negotiating power.

Sechin’s remarks consequently amount to more than a criticism of OPEC. They reflect the multipolar nature of the global oil market, where the strategic decisions of major consumers can be almost as consequential as coordinated production cuts by exporters.

Analysts have noted that if China’s lower import demand persists and its petroleum reserves continue to expand, Beijing could acquire greater leverage over global crude flows, potentially forcing producers to compete more aggressively for access to the Chinese market. That would represent a significant shift in the traditional balance of the oil industry: OPEC may still control a substantial share of global supply, but China’s purchasing decisions have the power to determine how much crude producers can sell and at what price.

President Donald Trump on Friday escalated his pressure on the Federal Reserve, demanding lower interest rates and threatening to cut off trade with countries that maintain trade surpluses with the United States.

Trump issued the sweeping ultimatum on Truth Social after a stronger-than-expected August employment report, arguing that the strength of the U.S. economy should allow the Federal Reserve to lower borrowing costs rather than maintain elevated interest rates.

“LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT,” Trump wrote, adding that such a move would be “BETTER THAN TARIFFS!”

He also urged Fed Chair Kevin Warsh to “get smart” and called on the central bank’s policymakers to act in what he described as the national interest.

“EMPLOYERS ADDED 162,000 JOB IN AUGUST. Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!” Trump wrote.

Trump argued that a stronger United States should translate into lower borrowing costs and said the country should have the lowest interest rate in the world.

Taken literally, the threat would represent a dramatic escalation in U.S. trade policy. The United States runs goods trade deficits with dozens of countries, including many of its largest trading partners. Cutting off trade with those economies would therefore go substantially beyond the targeted tariffs and trade restrictions that have characterized Trump’s economic policy.

The threat also places monetary policy directly at the center of Trump’s broader trade and economic strategy.

Trump has repeatedly argued that high U.S. interest rates make American businesses and consumers less competitive, while also complaining that persistent trade deficits leave the United States at an economic disadvantage. His latest intervention comes only two months before the midterm elections, when inflation and the cost of living are expected to remain major issues for voters.

The intervention has created a difficult policy environment for the Federal Reserve.

The August jobs report showed employers adding 162,000 positions, according to Trump’s post, substantially exceeding expectations. Stronger employment can give the Fed less reason to cut rates because a resilient labor market can support household spending and economic activity, potentially making it more difficult to bring inflation sustainably back to the central bank’s 2% target.

Warsh has recently signaled that the policy debate could move in the opposite direction from Trump’s demands.

A week before Trump’s latest statement, Warsh said the Fed remained committed to bringing inflation back to its 2% objective and emphasized that short-term interest rates remain the central bank’s primary tool for fulfilling its dual mandate of maximum employment and price stability.

“Short-term interest rates are the predominant tool to achieve the dual mandate,” Warsh said.

This suggested that further tightening could remain an option if inflation fails to decline sufficiently, a position that is fundamentally different from Trump’s demand for substantially lower borrowing costs.

The disagreement illustrates the tension between the president’s preference for cheaper credit and the Fed’s institutional responsibility to make monetary policy based on economic conditions.

Lower interest rates can reduce mortgage, corporate borrowing, and consumer-credit costs and can support investment and asset prices. But cutting rates while inflation remains persistent can also stimulate demand and make it harder for the central bank to return inflation to target.

Vice President JD Vance added to the administration’s pressure campaign Thursday, saying that lower rates would be the “proper and responsible” response to recent inflation data.

National Economic Council Director Kevin Hassett took a more restrained position Friday when asked about monetary policy on CNBC.

“The Fed will do what it wants to do. We respect their independence, but I think the argument for holding steady would be pretty strong,” Hassett said.

That comment highlights a divide within the administration’s messaging. Trump is demanding aggressive easing, while one of his senior economic advisers is publicly acknowledging a case for keeping rates unchanged.

The president’s latest comments also raise questions about the relationship between trade policy and monetary policy. Trump has frequently portrayed America’s trade deficits as evidence that foreign governments and trading partners have gained an unfair advantage over the United States. His latest proposal would effectively use access to the U.S. market as leverage to pressure deficit-running countries while simultaneously using trade policy as an argument for lower U.S. interest rates.

But the two issues are driven by different economic forces.

Trade balances reflect a complex combination of domestic savings, investment, fiscal policy, exchange rates, consumption patterns, and international capital flows. They cannot simply be eliminated by changing interest rates or imposing restrictions on imports.

Similarly, the Fed does not set interest rates to correct bilateral trade deficits. Its mandate is centered on employment and inflation, meaning a decision to cut or raise rates must be justified by the broader U.S. economic outlook.

The threat could therefore complicate relations with major U.S. trading partners if foreign governments interpret it as a warning that continued trade with America could become conditional on reducing their surpluses. It also adds uncertainty for companies whose supply chains depend on cross-border trade. A policy aimed at countries with trade surpluses could potentially affect manufacturing, agriculture, technology, energy, and consumer goods, depending on how broadly the administration implements the threat.

For financial markets, the more immediate issue is the growing political pressure on the Federal Reserve.

The Fed’s independence is a critical part of the credibility of U.S. monetary policy. Investors generally expect interest-rate decisions to respond to inflation, employment, and financial conditions rather than presidential demands. Repeated political pressure can therefore create uncertainty about how future monetary policy will be determined.

Trump’s intervention is particularly notable because pressure on the central bank had appeared to ease following Warsh’s appointment. His latest comments suggest that the dispute over borrowing costs is returning to the forefront of the administration’s economic agenda.

The president’s argument is that a strong U.S. economy should be able to borrow more cheaply, and lower rates would improve America’s competitive position. The Fed’s challenge, on the other hand, is more complicated. If economic growth and employment remain resilient while inflation is still above target, aggressive rate cuts could risk reigniting price pressures.

That leaves policymakers facing a politically charged question in the months ahead: whether economic strength provides the justification for cheaper money that Trump claims, or whether that same strength means the Fed must remain cautious about cutting rates.

Trump’s threat to restrict trade with deficit-running countries raises the stakes further. If implemented, it would transform a dispute over interest rates into a much broader confrontation involving monetary policy, trade, and the institutional independence of the U.S. central bank.