Foreign investors are shifting their capital allocations, favoring US stocks over government bonds at an unprecedented rate. According to Deutsche Bank's analysis of US Treasury data, international flows into US equities reached 2.8% of GDP in the year ending June 2026, outperforming Treasuries at 2%. This marks the first time this century that equity purchases have consistently outpaced government bond buying, outside of brief disruptions during the 2008 financial crisis and the pandemic. The S&P 500 is on track for a fourth consecutive year of double-digit gains, fueled by significant AI investment and rising profit margins.
This "huge shift" has been noted by George Saravelos, global head of FX research at Deutsche Bank. The change is attributed to erosion of Treasuries' status as a global "risk-free" asset, with investors growing concerned about lending to heavily indebted governments and the Federal Reserve's independence. The 10-year Treasury yield recently breached 5% for the first time since 2023, while the 30-year yield reached 5.32% after starting the year closer to 4.83%. US government debt hit $40 trillion in August 2026, raising significant fiscal sustainability concerns. James Turner, head of global fixed income at BlackRock, stated that government bonds are no longer as risk-free, and Matt Rowe of Man Group observed rising anxiety around Treasuries.
The increasing investment in US stocks, particularly by the private sector, is a significant change in the funding landscape. Foreign ownership of US stocks now stands at a record 18%, nearly double what it was in the mid-2000s. In 2010, foreign investors held a third of their US financial assets in equities and 22% in Treasuries; by the first quarter of this year, those shares stood at 61% and 14% respectively. This trend is further fueled by the AI boom, attracting substantial overseas money into US equities. Total foreign purchases of US stocks and bonds in calendar year 2025 reached a record $1.55 trillion, with private sector investors more than doubling their equity purchases to over $650 billion, contributing to all-time highs for the S&P 500 and Nasdaq.
This shift has implications for currency markets, with Saravelos suggesting the dollar may now track stock flows more than bond flows. A dollar driven by equity sentiment could strengthen during risk-on environments and weaken during sell-offs, contrasting its historical safe-haven pattern. While foreign investors continue to buy Treasuries, their total holdings stand at a record $9.4 trillion, with the private sector holding more than half. However, foreign governments have gradually reduced their exposure to US bonds for geopolitical, financial, and domestic economic reasons, leading to foreigners now holding only 30% of all outstanding, publicly held US federal debt, down from 50% in 2012. The US fiscal position is weakening while corporate profitability is strengthening, a dynamic AI could accelerate as companies get richer and redistributive pressures on governments grow, according to Deutsche Bank analysts.
