A Danish pension fund managing a total asset of 39 trillion won said it would sell all of the U.S. Government Bonds it holds. The decision came amid diplomatic friction as U.S. President Donald Trump repeatedly expressed interest in buying Greenland, an autonomous territory of Denmark.
The stated reason is "worsening U.S. fiscal soundness," but some say the move also reflects discontent with the Trump administration's unilateral diplomacy. Financial markets are on high alert over the potential fallout if Europe's massive holdings of U.S. Government Bonds flood the market.
According to Reuters, Bloomberg and other foreign media on the 20th (local time), Denmark's pension fund AkademikerPension said it would liquidate by the end of this month about $100 million (about 148 billion won) worth of U.S. Government Bonds. The fund is a major Danish institutional investor with about 170,000 members and managing $26 billion (about 3.86 trillion won) in asset. Chief Investment Officer Anders Schelde said in a statement, "The United States' large fiscal deficits and liability burdens are serious, and it is no longer appropriate to hold Government Bonds," adding, "For liquidity and risk management, we decided to seek alternatives such as dollar cash or short-term agency bonds instead of U.S. Government Bonds."
Schelde said the decision was not directly related to the Greenland dispute, but added, "It is true that the rift between the two countries made it easier to decide." The remark suggested the move was not entirely free of political considerations.
In fact, this is not the first "de-Americanization" move in Denmark. Earlier, Lærernes Pension also reduced its share of U.S. Government Bonds, citing concerns about the sustainability of U.S. liability and encroachment on the Federal Reserve's independence. PFA Pension likewise cut its holdings as part of a portfolio adjustment. Worsening fiscal concerns, including Moody's downgrade of the U.S. sovereign credit rating from Aaa to Aa1 in May, also provided justification.
Financial markets are watching whether the U.S. Government Bonds sell-off, led by Denmark, will spread across Europe. Europe holds about $3.5 trillion (about 5,180 trillion won) of U.S. Government Bonds, the second most after Asia. If European countries sell simultaneously, a "capital war" could erupt, with U.S. Government Bonds yields surging (prices falling) and the dollar's value wavering.
Bridgewater Associates founder Ray Dalio said at the Davos forum that "beyond a trade war lies the possibility of a capital war," warning, "We should not ignore the possibility that people may not want to buy U.S. Government Bonds." If selling pressure out of Europe intensifies, the U.S. Federal Reserve would have to buy Government Bonds through quantitative easing (QE). That could be a severe blow to the U.S. economy, which is already struggling with inflation and liability.
However, experts saw the likelihood of an immediate fire sale as low. Citing experts, Bloomberg said, "Most of Europe's U.S. Government Bonds are held by private investors, not the Central Bank, making it difficult for governments to lead and orchestrate sales." Unlike major holders of U.S. Government Bonds such as China, it is difficult to control private capital for political purposes.
U.S. Treasury Secretary Scott Bessent also dismissed at Davos "the story that Europe will dump U.S. Government Bonds" as a false narrative that does not make logical sense. Still, amid fears that the geopolitical risk sparked by the Greenland issue could spill over into financial risk, U.S. Government Bonds yields rose that day.