Norway's sovereign wealth fund has proposed cutting the allocation of government bonds in its $2.3 trillion investment portfolio, chiefly affecting its holdings of U.S. Treasurys, as it seeks to diversify its risk exposure and boost returns.

The heads of Norges Bank Investment Management wrote in a letter to the country's finance ministry, made public Friday, that it recommended reducing the government subindex of its bond holdings from 70% to 50% — a level it said would provide sufficient liquidity during market turbulence while allowing it to seek greater returns elsewhere.