Foreign investors are now allocating more capital to US stocks than government bonds, marking a rare shift driven by concerns over inflation and America’s growing debt. International flows into US equities reached 2.8 per cent of GDP in the year to June, surpassing Treasuries at 2 per cent, according to Deutsche Bank analysis of US Treasury data. The S&P 500 remains on track for a fourth consecutive year of double-digit gains, fueled by AI investment and rising profit margins, per Fact Set data.

Meanwhile, Treasuries’ status as the global “risk-free” asset is eroding as investors question lending to heavily indebted governments and the Federal Reserve’s independence. The 10-year Treasury yield recently breached 5 per cent for the first time since 2023. George Saravelos, global head of FX research at Deutsche Bank, called it a “huge shift,” noting that the US private sector balance sheet is booming while the public sector worsens. He warned the dollar may now track stock flows more than bond flows.

US government debt hit $40tn last month amid ongoing deficits, raising fiscal sustainability concerns. James Turner, head of global fixed income at BlackRock, noted that government bonds are no longer as risk-free. Matt Rowe of Man Group observed rising anxiety around Treasuries, with equities increasingly competing for investor funds.