Foreign investors prefer US stocks to Treasuries as debt worries grow

Foreign investors are demonstrating a historic shift in their investment preferences, now favoring US stocks over US Treasury bonds. This marks the first time, outside of the Global Financial Crisis, that equity inflows into the US have surpassed fixed income. Deutsche Bank analysis indicates that the share of US Treasuries held by overseas investors has fallen from over 50% at its peak to approximately 30% today. Conversely, foreign ownership of US equities has reached all-time highs, with the US attracting a record $600 billion in net equity inflows in the year leading up to March 2026. This figure significantly outweighs investments in government and agency bonds, marking the largest margin in history.

Analysts attribute this pivot to several factors. George Saravelos, global head of FX research at Deutsche Bank, highlighted the booming American private balance sheet, driven by advancements in AI and record corporate profit margins. In contrast, he pointed to the worsening public sector balance sheet, with projected deficits exceeding 6% of GDP. The US national debt recently topped $40 trillion, and the federal budget deficit is estimated to reach about $2.1 trillion for the fiscal year ending September 30. These fiscal concerns, along with persistent inflation pressures, have contributed to a broader global bond sell-off, pushing yields on the benchmark US 10-year Treasury note to their highest level since November 2023.

Major international investors are adjusting their portfolios in response to these trends. Norges Bank Investment Management, which manages Norway's substantial Government Pension Fund, has proposed reducing the share of government bonds in its fixed-income benchmark. If adopted, this would decrease its US Treasury holdings from approximately 34.1% to 21.9% of its bond portfolio. Similarly, China's holdings of US Treasuries dropped from $731.4 billion a year prior to about $633.4 billion as of June. Investment management giant BlackRock is also reflecting this sentiment, currently being overweight in US equities due to strong corporate earnings and a favorable macro environment, while being underweight in long US Treasuries, stating that "long-duration bonds... are a less reliable portfolio diversifier in the new regime."