Foreign investors are shifting their capital away from US Treasuries and towards US equities, a historic reversal not seen since the 2008 global financial crisis. This trend is driven by a booming American private sector, fueled by advancements in AI and record profit margins, contrasted with a deteriorating public sector balance sheet facing sustained deficits exceeding 6% of GDP. Deutsche Bank's global head of FX research, George Saravelos, noted that equity inflows into the US have surpassed fixed income for the first time ever outside of the GFC.
The share of US Treasuries held by overseas investors has fallen from over 50% at its peak to approximately 30% currently. Conversely, foreign ownership of US equities has reached all-time highs, with a record $600 billion of net equity inflows in the year to March 2026. This significantly outweighs investments in government and agency bonds, marking the largest margin in history. This shift comes as investor concerns over inflation and spiraling government debt have pushed yields on the benchmark US 10-year Treasury note to their highest level since November 2023, and the 30-year note yield also saw a sharp increase.
The US national debt topped $40 trillion last month, and the federal budget deficit is projected to hit around $2.1 trillion in the fiscal year ending September 30, representing over 6% of US GDP. Major foreign holders of US debt are reducing their exposure; China, for instance, held about $633.4 billion of US Treasuries as of June, down from $731.4 billion a year prior. Norges Bank Investment Management, which manages Norway's Government Pension Fund, has also proposed reducing its US Treasury allocation from about 34.1% to 21.9% of its bond portfolio. Fund management giants like BlackRock are reflecting this pivot, being overweight US equities due to strong corporate earnings and underweight long US Treasuries.
