Foreign investors are now buying more US stocks than government bonds in a rare move that comes amid fears that inflation and America’s fast-growing debt pile are undermining the “risk-free” status of Treasuries.
International flows into US stocks reached 2.8 per cent of US GDP on average in the year to June, overtaking Treasuries — at 2 per cent of GDP — for the first time this century outside brief episodes during the Covid-19 pandemic and in the aftermath of the global financial crisis, according to analysis of US Treasury data by Deutsche Bank.
The change reflects the ever-growing lure of the US stock market, with the S&P 500 on track for a fourth straight year of double-digit gains. The blue-chip S&P 500 is up about 12 per cent this year. Powering the rally has been vast AI investment, which is driving profit margins to new highs, according to FactSet data stretching back to 2009.
Booming corporate profits have allowed traders to shrug off warnings about the fallout from the near closure of the Strait of Hormuz and surging energy prices.
At the same time, Treasuries’ traditional role as the global risk-free asset is coming under increasing pressure as investors grow wary of lending money to heavily indebted governments and question the independence of the Federal Reserve in a move that could transform the way the US dollar trades. Today the 10-year Treasury yield reached its highest level since 2007.
The rise in yields comes despite US Treasury secretary Scott Bessent’s plan to buy back long-term government debt, with the announcement last week of a $6bn purchase disappointing investors.