Foreign investors are increasingly favoring U.S. stocks over U.S. government bonds, a significant and historic shift according to strategists at Deutsche Bank. For the first time outside of the Global Financial Crisis, equity inflows into the U.S. have surpassed fixed-income investments. George Saravelos, Deutsche Bank's global head of FX research, highlighted that the share of U.S. Treasuries held by overseas investors has plummeted from over 50% at its peak to approximately 30% currently. This contrasts sharply with foreign ownership of U.S. equities, which has reached all-time highs.
This allocation reversal is attributed to the booming American private sector, fueled by advancements in artificial intelligence and record corporate profit margins. In contrast, the U.S. public sector balance sheet continues to worsen, with projected deficits exceeding 6% of GDP. In the year leading up to March 2026, the U.S. attracted a record $600 billion in net equity inflows, dwarfing investments in government and agency bonds by the largest margin in history. This trend was further underscored in Q2 2026, when net foreign purchases of U.S. stocks totaled $152 billion, while net purchases of U.S. debt instruments were only $63 billion, creating an $89 billion gap favoring equities.
Major institutional investors are echoing this sentiment. Norges Bank Investment Management, manager of the world's largest sovereign wealth fund, has proposed reducing its U.S. Treasury weighting from about 34.1% to 21.9% of its bond portfolio. Similarly, BlackRock is currently overweight U.S. equities due to strong corporate earnings and a favorable macroeconomic environment, while being underweight long U.S. Treasuries. They argue that long-duration bonds are a less reliable portfolio diversifier in the current economic regime. China's holdings of U.S. Treasuries have also declined, from $731.4 billion a year prior to $633.4 billion as of June this year.
The shift poses potential risks, particularly for sectors reliant on stable, low-cost dollar funding through the Treasury market, such as regional banks and highly leveraged corporations, which could face increased refinancing risks. Conversely, megacap technology and industrial sectors with global revenue bases are likely to benefit from continued equity inflows. A sustained outflow from Treasuries could push yields higher by 15-25 basis points over the medium term, impacting rate-sensitive sectors like real estate and utilities. The concentration of equity buying is notable, with nearly 60% of Q2 foreign stock purchases flowing into large-cap technology and healthcare stocks.
