Foreign investors prefer US stocks to Treasuries as debt worries grow

{"text":[[{"start":8.1,"text":"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."}],[{"start":19.28,"text":"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 in the Covid-19 pandemic and the aftermath of the global financial crisis, according to analysis of US Treasury data by Deutsche Bank."}],[{"start":39.56,"text":"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. Powering the rally has been vast AI investment, which is driving profit margins to new highs, according to FactSet data stretching back to 2009."}],[{"start":56.22,"text":"At the same time, Treasuries’ traditional role as the global risk-free asset is coming under increasing pressure as investors grow warier 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. On Tuesday the 10-year Treasury yield reached its highest level since 2007."}],[{"start":76.16,"text":"This is a “huge shift in US asset markets”, said George Saravelos, global head of FX research at Deutsche Bank, reflecting the fact “the American private balance sheet is booming . . . but the public sector balance sheet keeps worsening”."}],[{"start":null,"text":"

"}],[{"start":90.08,"text":"Saravelos added that the value of the dollar might now be more closely tied to flows into US stocks than to flows into Treasuries, suggesting the greenback could strengthen as risk appetite grows. This would mark a major break from its previous pattern of trading, when it has tended to rally during so-called risk-off periods, as foreign investors dump riskier trades and flock to US debt as a haven."}],[{"start":112.256,"text":"US assets were “no longer the ‘safe’ but the risky asset of choice”, Saravelos wrote."}],[{"start":116.84,"text":"American assets came under pressure early last year after President Donald Trump’s sweeping “liberation day” tariffs in April triggered fears that the era of US dominance in financial markets could be waning, hitting stocks, bonds and the dollar."}],[{"start":131.6,"text":"This brief “sell America” sentiment quickly gave way to investor fear of missing out on further gains in AI stocks, propelling Wall Street to new highs. But the US Treasury market has remained under pressure, as it has been swept up in broader concerns about global worries about debt levels and inflation in a number of developed economies."}],[{"start":null,"text":""}],[{"start":150.92,"text":"“Government bonds are not as risk-free as they used to be,” said James Turner, head of global fixed income for Emea at BlackRock. “With [government] deficits where they are, if that was a corporate [entity] . . . you would not say that was a risk-free situation.”"}],[{"start":164.88,"text":"At the same time, the US government debt pile hit $40tn last month while the government continues to run a deficit, adding to fears that the fiscal trajectory of the US is unsustainable. Last week, Trump pledged to give a $5,000 “dividend” to every adult US citizen if Republicans retained control of Congress in the midterm elections, a move that could cost more than $1tn."}],[{"start":188.72,"text":"The yield on 30-year Treasuries has climbed from 4.83 per cent to 5.32 per cent so far this year. Yields rise when bond prices fall."}],[{"start":197.64,"text":"“I have never heard so much concern and debate around what ‘risk free’ actually means,” said Matt Rowe, senior portfolio manager at Man Group."}],[{"start":206.2,"text":"Investors with this growing anxiety around Treasuries were “quickly faced” with similar problems, such as rising issuance in other bond markets, he added. “In an odd twist, equities seem to be competing for those funds [instead].”"}],[{"start":219.04,"text":"Earlier this month the manager of Norway’s $2.3tn oil fund proposed slashing its holdings of US Treasuries by about $80bn and instead buying debt such as mortgage-backed securities backed by government agencies."}],[{"start":232.76,"text":"Marija Veitmane, head of equity research at State Street, said the bank is seeing the same pattern emerging among institutional clients, with greater allocations to stocks, seemingly at the expense of government bonds."}],[{"start":244.48,"text":"“If you are worried about the US government’s fiscal prudence, then comparing equity fundamentals with governments . . . companies look very, very solid,” Veitmane said. “Profit growth is strong.”"}],[{"start":257.56,"text":"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."}],[{"start":null,"text":""}],[{"start":269.84,"text":"In contrast, the blue-chip S&P 500 is up about 12 per cent this year, as 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."}],[{"start":284.44,"text":"The index chalked up 52 per cent year-on-year earnings growth in the second quarter of 2026, according to FactSet, or 34 per cent excluding Amazon and Alphabet, which reported significant one-off boosts from their stakes in other AI companies."}],[{"start":300.14,"text":"However, some investors and analysts remain wary that the stock market, which has made little progress this summer, could start to suffer if yields rise further, raising corporate borrowing costs and increasing the lure of fixed income investments."}],[{"start":313.56,"text":"The sell-off in bonds was “top of mind in the equity market”, said Michiel Plakman, global head of equity at fund firm Robeco."}],[{"start":321.08,"text":"“If there’s trouble in the bond market . . . usually that’s what troubles stocks.”"}],[{"start":330.88,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1789455498_7797.mp3"}