Foreign capital has just delivered its verdict on the United States, and the verdict is not what Washington wants to hear.
A record $600 billion flowed into US equities over the past year, outpacing foreign purchases of Treasuries for the first time since the 2008 financial crisis.
For decades, buying America meant buying its government debt alongside its companies as though they were one investment.
This assumption is now breaking apart in real time.
The scale of the fiscal problem explains why. The federal deficit is projected at roughly $2.1 trillion for the fiscal year just ending, more than 6% of GDP, and total federal debt has pushed past $40 trillion.
The 10-year Treasury yield has broken above 5%, and the 30-year is at its highest level since late 2023.
Bond markets are repricing a government whose borrowing has outrun its discipline, not simply reacting to a single data point.
Official-sector investors are acting on that repricing rather than waiting it out. Large foreign holders have trimmed their Treasury positions over the past year, and at least one major sovereign wealth fund has proposed cutting government bonds from more than a third of its fixed-income benchmark to closer to a fifth.
When institutions that manage money for entire nations start rewriting their rulebooks on US debt, that is not noise. It’s a major shift in how the world prices American risk.
Set against that is a corporate America that looks nothing like its government. Profit margins are at record levels, driven substantially by the investment boom around artificial intelligence, and earnings growth has continued even as fiscal warning signs have piled up.
Major asset managers have been positioning for exactly this divergence, running portfolios overweight US equities and underweight long-dated Treasuries. The market now treats American business and American government as two separate credits, priced on their own terms rather than as a single one.
This matters because bonds have historically done a job that goes beyond yield. A government bond was supposed to be the ballast in a portfolio, the asset that holds steady or rises when equities fall.
This relationship depends on investors trusting the issuer’s fiscal path, and that trust is precisely what is eroding. As inflation risk, driven by energy costs and heavy government borrowing, becomes the dominant force behind bond yields rather than growth expectations, Treasuries stop behaving like ballast and start behaving like just another risk asset. A portfolio built on the old assumption is not diversified the way its owner believes.
The argument here is narrower: lumping American business and government bonds together as ‘generic US exposure’ is now a huge mistake, regardless of whether either is fairly valued on its own.
Corporate earnings and sovereign creditworthiness are being judged by different standards, on different timelines, by some of the largest pools of capital in the world, and portfolios that don’t reflect that distinction are carrying a risk their owners never explicitly chose.
Every investor holding globally diversified funds should be asking where their US exposure actually sits. Is it concentrated in the businesses driving record profits, in the government debt now being downgraded in practice if not on paper, or spread across both without anyone having made that decision deliberately?
The answer changes what a portfolio is actually exposed to, and it changes it substantially.
The United States is now two investments, not one, moving in different directions, priced by different logic, and carrying different risks.
Investors still treating American exposure as a single decision are behind a market that has already moved on.
Nigel Green is deVere CEO and Founder
Also published on Medium.
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