Norges Bank Investment Management, the world's biggest sovereign wealth with $2.3 trillion in assets, has proposed reshuffling its U.S. debt holdings away from Treasuries.

In a letter to Norway's finance ministry on Tuesday, the fund's manager recommended slashing government debt in its benchmark bond index. The change would result in roughly $80 billion of U.S. Treasury securities being offloaded. The letter is part of the fund's regular advice cycle to the ministry, which has the final say over the benchmark; any change would require parliamentary sign-off in Norway before taking effect.

Because the fund is managed largely against its benchmark index, changes to the index composition translate directly into portfolio shifts, which is why the proposed rebalancing carries significant weight for global bond markets.

However, the reduction in Treasuries would be mostly offset by purchases of riskier forms of U.S. debt, including mortgage-backed securities.

The fund noted that the risk associated with MBS does not stem from the threat of default. Instead, it arises because mortgages can be refinanced at lower interest rates, benefiting borrowers over investors. MBS debt therefore entails a prepayment premium to account for this risk. For a long-term investor, harvesting such risk premia is a stated rationale for broadening the index, as the fund holds assets across generations to support Norway's government pension obligations.

"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," the fund's letter said. "A broad market index provides exposure to more risk premiums and gives a more diversified benchmark index than today."

The letter added that MBS are guaranteed by mortgage giants Fannie Mae, Freddie Mac and Ginnie Mae, "and the credit quality is close to that of US government bonds." Agency MBS form one of the largest fixed-income markets in the world outside of Treasuries, making them a deep and liquid alternative.

Under the proposed rebalancing, the fund's holdings of U.S. Treasuries would be trimmed by 12.2 percentage points, while the share of non-government U.S. debt would rise by 11.4 percentage points. Overall exposure to dollar-denominated assets would remain largely unchanged at 52.5%, versus 52.9% under the current portfolio.

Although the Norwegian sovereign wealth fund characterized the proposed changes as a realignment to match broader market weightings, the move comes at a politically sensitive moment. U.S. national debt has climbed to $40 trillion, and the federal deficit is on track to reach $2 trillion this fiscal year, with no signs of an effort to rein it in.

Treasury Secretary Scott Bessent has also shown an interventionist streak aimed at keeping Treasury yields in check and preventing the dollar from rising too much. At the same time, President Donald Trump has launched trade wars against longtime allies, threatened to reduce the U.S. commitment to NATO, and even suggested that Greenland could be seized militarily.

Amid a more belligerent U.S. administration, holding dollar assets has become riskier, as they could someday become the target of sanctions from Washington. Dollar-denominated assets such as Treasury bonds now make up a smaller share of central bank reserves worldwide, with gold accounting for a larger share.

While Norges Bank Investment Management is cutting the overall share of government bonds in its benchmark, the rebalance would be uneven, with Treasuries taking the biggest hit. U.S. government bonds would drop to 21.9% from 34.1%, while euro zone debt would see a more modest dip to 14.1% from 16.8%. Japanese government bonds, by contrast, would increase to 7.4% from 4.6%, and the UK would remain unchanged at 4.2%.

Taken together, these moves would bring the fund's weighting to government bonds within its benchmark bond index down to 50% from 70%.

"A government share of 50% will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets," Norges Bank Governor Ida Wolden Bache and Norges Bank Investment Management CEO Nicolai Tangen wrote in the letter. The next step to watch is the finance ministry's response and any subsequent parliamentary handling of the benchmark change, which would determine whether and when the roughly $80 billion in Treasury sales begins.

This story was originally featured on Fortune.com.