Foreign investors are now buying US equities at a faster pace than US Treasuries. This unusual trend is fueled by concerns that inflation and the nation's rapidly expanding debt load are chipping away at the "risk-free" status of government bonds. An analysis by Deutsche Bank of US Treasury data reveals that, over the year through June, the average size of international capital flowing into US stocks reached 2.8% of the country's GDP, surpassing the 2% of GDP ratio allocated to bond purchases. With the exception of brief periods following the pandemic and the global financial crisis, this marks the first time in the 21st century that equity inflows have outpaced fixed income.

The shift underscores the rising appeal of the stock market, with the S&P 500 on track for potentially a fourth consecutive year of double-digit gains. According to FactSet data since 2009, heavy investments in artificial intelligence have driven corporate profit margins to record highs, buttressing the current equity rally. Meanwhile, the traditional role of Treasuries as the world's safe-haven asset is facing growing strain. Investors are increasingly cautious about lending to a highly indebted government and are beginning to question the Federal Reserve's independence, a change that could reshape the trading logic for the US dollar. On Monday, the yield on the 10-year Treasury surpassed 5% for the first time since 2023.

George Saravelos, global head of FX research at Deutsche Bank, called this a "significant shift in the US asset market," noting it reflects "the continued strength of the US private sector balance sheet, but a deteriorating public sector balance sheet." Saravelos added that the dollar's value might now be more closely linked to equity inflows rather than bond inflows. This implies that the greenback could strengthen as risk appetite rises, deviating sharply from past patterns where foreign investors sold risky assets and flocked to Treasuries for safety, often boosting the dollar during so-called risk-off phases. He wrote that US assets are "no longer 'safe assets,' but the preferred risk asset for investors."

Earlier last year, US assets faced pressure. In April, President Trump's sweeping "Liberation Day" trade tariffs triggered worries that American dominance in financial markets might be ending, leading to simultaneous declines in stocks, bonds, and the dollar. However, that fleeting "sell-off US assets" sentiment soon dissipated as investors, fearing they would miss out on further AI-driven stock gains, pushed Wall Street indices to new highs. Yet the bond market has remained under pressure, swept into a broader sell-off driven by concerns over debt levels and inflation in developed economies worldwide.

James Turner, global head of fixed income for Europe, the Middle East and Africa at BlackRock, stated that "sovereign bonds no longer carry the same risk-free characteristics as they once did. At current deficit levels, if this were a corporate entity… you would never consider it to be risk-free." Meanwhile, the US government's debt surpassed $40 trillion last month, with the fiscal deficit persisting, fueling worries that the country's fiscal path is unsustainable. Last week, Trump pledged to issue a $5,000 "dividend" to every American adult if Republicans retain control of Congress in the midterm elections, a move that could cost more than $1 trillion.

Year-to-date, the 30-year Treasury yield has climbed from 4.83% to 5.32%. Bond prices fall as yields rise. Matt Rowe, senior portfolio manager at Man Group, said, "I have never seen so much angst and debate in the market about what 'risk-free' actually means." He added that investors growing anxious about Treasuries are quickly discovering similar issues in other bond markets, such as rising supply. "Ironically, the stock market is competing for that capital," he remarked.

Earlier this month, the manager of Norway's $2.3 trillion sovereign oil fund proposed reducing its US Treasury holdings by approximately $80 billion, shifting instead into agency-guaranteed mortgage-backed securities and other bond types. Maria Vetmane, head of equity research at State Street, noted that its institutional clients are showing the same trend: increasing equity allocations while diverting funds away from sovereign bonds. "If you worry about US fiscal prudence, and then compare equity fundamentals against government finances… corporate fundamentals look very solid," Vetmane said, citing "strong earnings momentum."

Despite US Treasury Secretary Scott Bessent's plan to buy back long-dated bonds, yields have continued to rise. The $6 billion buyback quota announced last week disappointed investors. In contrast, the blue-chip S&P 500 has climbed about 12% so far this year. Strong corporate earnings have led traders to shrug off warnings about the impact of a near-blockade of the Strait of Hormuz and surging energy prices. FactSet data shows that earnings for S&P 500 constituents grew 52% year-over-year in the second quarter of 2026; stripping out Amazon and Alphabet, the growth rate is 34%. These two companies benefited from large one-time gains tied to equity stakes in other AI firms.

Still, some investors and analysts remain cautious: with the stock market nearly flat this summer, further increases in Treasury yields could weigh on equities. Higher yields raise corporate borrowing costs and enhance the appeal of fixed-income assets. Michiel Plakman, global head of equities at asset manager Robeco, said the bond sell-off is "the biggest concern for the equity market right now. Once there's turbulence in the bond market… stocks usually come under pressure as well."