Edward Conard

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Markets Go Calm: A Lehman Pause or the Real Thing?

AI Summary. Widely cited financial conditions indexes from Goldman Sachs and Bloomberg showed relatively easy conditions followed by rapid tightening. Gavekal Research argues these gauges track financial-market risk appetite rather than whether real-economy conditions support credit growth, and its alternative measure—using money supply, the yield curve, bank health, investment returns and housing affordability—already indicated very tight money.

John Authers Bloomberg
Date Posted:
March 21, 2023
Is Database:
Database

.@johnauthers cites work by @willdenyer of Gavekal Research whose gauge of financial conditions suggests that financial conditions are now extremely tight.

Do popular financial conditions indexes measure risk appetite rather than credit conditions?

Core argument: The widely cited financial conditions indexes from Goldman Sachs and Bloomberg show conditions were relatively easy until recently and then tightened rapidly, with neither index reaching particularly extreme levels.

How exactly should financial conditions be measured? It proves to be a difficult issue. The most widely cited benchmarks incorporating a range of market indicators, produced by Goldman Sachs and by Bloomberg, both suggest that conditions were relatively easy until very recently, and then tightened rapidly. Neither is particularly extreme. But what exactly are we (and Goldman) measuring? Will Denyer of Gavekal Research suggests that these indexes are of limited use. Discussing the Bloomberg index, he said: “It comprises credit spreads in the money and bond markets, the S&P 500, and volatility measures including the VIX index. As a result, it is probably better thought of as an indicator of financial market risk appetite, rather than as a measure of whether or not conditions in the real economy are conducive to credit growth.” He offers his own gauge, which he dubs the “true financial conditions index,” an ambitious undertaking that incorporates money supply growth, the yield curve, metrics of vitality in the banking sector, the spread between the rate of return on corporate investments in real assets and the real cost of financing those investments, and measures of housing affordability (using real mortgage rates, deflated by inflation expectations). Put all of this together, and it looks like money was already very tight last week, ahead of the Credit Suisse weekend, when this chart was produced.

Takeaways by Macro Roundup® AI

  1. The widely cited financial conditions indexes from Goldman Sachs and Bloomberg show conditions were relatively easy until recently and then tightened rapidly, with neither index reaching particularly extreme levels.
  2. Will Denyer of Gavekal Research argues the Bloomberg index — built from money and bond market credit spreads, the S&P 500, and volatility measures including the VIX — is better understood as an indicator of financial market risk appetite than of real-economy credit conditions.
  3. Denyer's "true financial conditions index," incorporating money supply growth, the yield curve, banking sector vitality, the spread between returns on corporate real-asset investments and their real financing cost, and housing affordability, indicated money was already very tight ahead of the Credit Suisse weekend.

Since the March 2020 sellout, the average S&P 500 stock has outperformed the NYSE FANG+ index. “It is only now that investors have fully grasped that [FANGs] shouldn’t be valued as though the pandemic conditions would continue forever.”

“…This incident is very much about mega-cap tech and the premium it deserves over the rest of the market. Looking at the ratio between the S&P 500 Equal Weight Index, in which each stock has a 0.2% weighting regardless of its size, and the standard S&P 500 benchmark, illustrates just how much tech shares weigh down the index when the average stock isn’t doing so badly. The average stock has comfortably beaten the index so far this year. The average S&P 500 stock has now outperformed the NYSE FANG+ index since the nadir of the Covid-19 selloff in March 2020….”

John Authers, “Wile E. Coyote Moment as Tech Goes Off the Cliff,” Bloomberg, October 28, 2022, https://www.bloomberg.com/opinion/articles/2022-10-28/tech-s-fangs-plummet-in-wile-e-coyote-moment-on-earnings?sref=U3dOGIDF

Wile E. Coyote Moment as Tech Goes Off the Cliff

Crash Landing

There is no character in the entire canon of world literature and drama more useful for explaining markets than Wile E. Coyote. In the Roadrunner cartoons, he would run off the edge of a cliff, and continue running into midair. Only once he stopped, looked down, and realized that he was in midair, did he fall. He thus gave the market the invaluable concept of a Wile E. Coyote moment, when investors realize they’ve been running without support for a long time, and prices that should have long since been gradually coming down suddenly collapse.

The laws of physics make what the coyote does impossible. But markets are driven by human nature and crowd psychology. Coyotes can defy gravity for years in the markets — but generally there comes a point when the game is up. And this week has seen the FANGs (the acronym for the huge internet platform groups that originally stood for Facebook, Amazon, Netflix and Google when coined) respond to gravity at last.

Netflix had well-received results last week; but Microsoft Corp., Google-owner Alphabet Inc., Amazon.com Inc. and even Apple Inc. have all this week suffered sharp writedowns, while the treatment meted out to Meta Platforms Inc., the Facebook parent, has been savage. Since Tuesday evening when its results came out, Meta’s stock has been punished horribly for a disappointing revenue forecast, despite Mark Zuckerberg asking for patience given the social-media giant’s growing investments, particularly in the metaverse. The stock has plunged 25% Thursday and 70% year-to-date:

The fall from grace has been staggering. As of Thursday’s close, Meta has underperformed the benchmark S&P 500 since it went public, even excluding dividends. The following graph shows the performance of the social media giant, the benchmark index and the S&P 500 Total Return Index, which is calculated intraday by the S&P based on both price changes and reinvested dividends. For investors who thought they were betting on the next big thing, it won’t be surprising if they are starting to think twice.

Or let’s put that another way. After Thursday’s carnage, Meta trades at just over nine times trailing earnings (having traded as high as 37 times earnings little more than a year ago). The S&P 500 as a whole trades at 18. One of the most exciting growth stocks on the planet, with all its greatest days still ahead of it, is somehow now regarded as so weak that it should only trade at half the market multiple. That kind of judgment is a recognition that Meta should never have been valued so richly in the first place.

Another important way to illustrate the scale of what’s going on involves comparing market capitalizations. The market value of Meta has slipped by $676 billion this year, pushing it out of the world’s top 20 largest companies. At one point it was the fifth-largest in the US, valued at more than $1 trillion, and almost three times the size of the biggest US bricks-and-mortar retailer, Walmart Inc. Now, for the first time since 2015, Meta is smaller than Walmart:

Naturally Meta’s numbers and predictions were disappointing, but its greatest problem was a sudden return by investors to the basics of cash flow and balance sheet analysis. The decline in Meta’s free cash flow drew an apology even from previously ardent backer Jim Cramer on CNBC. And Neil Campling of Mirabaud Equity Research made this telling observation: “For every $1 Apple spends on operating costs, it generates $6.80 in revenue. For every $1 Meta spends on operating costs, it generates $1.17 in revenue.”

This is all a tad reminiscent of the period of a few weeks in early 2000 when dot-com investors suddenly moved from metrics like “clicks per eyeball” to “burn rate” — an old metric with a new name, referring to how quickly startup companies were burning through their cash flow. Meta has become a vastly more substantial and tangible concern than the entities that evaporated 22 years ago, but the sudden and swift realization that it had been valued far too generously still rings those bells.

The FANGs’ crisis of confidence is all the more interesting because it comes just as bond yields are falling and optimism is growing that central banks will soon relent (of which more below). In fact, the pessimism from Meta, given the company’s sheer size, even overshadowed the positive gross domestic product data Thursday, according to Nicole Webb, SVP and financial adviser at Wealth Enhancement Group. The stock’s slide has had “such a global impact” that it may prompt a broader market recalibration: “I appreciate seeing a slowdown in the mega-cap tech companies. I have always had this thesis that trades don’t grow from the sky. And I think Silicon Valley is showing a bit of its age in that they really ever had to be thoughtful about hiring, layoffs and restructuring.”

She may be right. This incident is very much about mega-cap tech, and the premium it deserves over the rest of the market. Looking at the ratio between the S&P 500 Equal Weight Index, in which each stock has a 0.2% weighting regardless of its size, and the standard S&P 500 benchmark, illustrates just how much tech shares weigh down the index when the average stock isn’t doing so badly. The average stock has comfortably beaten the index so far this year:

Perhaps even more impressively, the average S&P 500 stock has now outperformed the NYSE FANG+ index since the nadir of the Covid-19 selloff in March 2020. For more than a year, investors worked on the assumption that these companies would benefit from the pandemic, which they unquestionably did — but it is only now that investors have fully grasped that they shouldn’t be valued as though the pandemic conditions would continue for ever:

Strategically, Webb suggests that the selloff could offer a good point to enter tech again, although tactically it appears to be a good time to stay in the bricks-and-mortar stocks that are reviving at present. Today’s defensive trades are more about existing in a lower-growth environment for a time, which will create a more sustainable market “and gives us a launching pad to the next wave of growth.”

For Anthony Saglimbene, chief market strategist at Ameriprise Financial, what’s happening is simply the divergence between the old economy and the new economy.

Old economy stocks, he said, comprise those that are value-based, which typically perform better due to their stable earning streams. This is where investors are gravitating now, especially since they are less sensitive to rate increases. The new economy, on the other hand, include high-growth tech names that are prone to fears of rising interest rates, since many of them are valued based on their projected profits far into the future. And as the Fed forges on with its most aggressive tightening monetary policy in decades, the future profits of tech firms will be worth far less.

Unfortunately for the tech sector, the bad news continued at the end of the day, when it was the turn of Amazon.com Inc. to feel the market’s wrath in after-hours trading. Its third-quarter earnings were above prior expectations, but a particularly sanguine warning that the coming holiday season isn’t going to be a good one for sales prompted investor flight. The stock plummeted 20% at one point in extended trading.

The numbers involved are vast. The price at which Amazon’s shares came to rest implied a fall of $159 billion in market cap. This would leave it in the club of trillion-dollar companies, but only just, at $1.02 trillion. This seems like quite a reckoning, as the tech companies fall coyote-like toward the canyon floor. But to Saglimbene, who is overweight tech, the headwinds are only temporary until interest rates find their equilibrium.

For now, other parts of the market are enjoying a boost — companies that warmly fill tummies, bring us to exciting places, and entertain us with endless movies. To Webb, it’s simply a matter of everyone getting their time, as companies that were hurt by the pandemic return to normal: “McDonalds is such a great story in the psyche of the consumer as is Chipotle as is Boeing… When you think about the world today, kids are back in school so it’s not surprising Netflix has new subscribers again. Well now we are back to the school year, winter is coming. Everyone is back to normal activity. Return to normalcy will prevail the trade.”

More telling still was the judgment of Louis Navellier, a veteran growth investor who has cheered fast-growing tech stocks in the past, and has made a fortune by looking at growth prospects rather than valuations. He pointed out that Meta’s spending on the metaverse would likely have a long payback, and that the Dow Jones Industrial Average was still up for the day thanks to strong numbers from McDonald’s Corp. and a range of other old-world names that earn their money from making things and selling them to people, including Honeywell International Inc., Caterpillar Inc., Boeing Co. and Merck & Co. Inc. Amid the bloodbath for tech companies, McDonald’s shares have somehow managed to rise slightly for the year so far.

Navellier suggests that assumptions about tech that have survived for the best part of a quarter century are at last being revised: “Consider that both Microsoft and ExxonMobil are currently generating roughly the same amount of free cash flow yet Exxon has a market value of only 25% of Microsoft. If the economy continues to slow as the Fed intends, the leadership that tech has enjoyed for many years may be brought back down to earth by valuation adjustments.”

And as the Wile E. Coyote moment demonstrates, now that those valuations are at last being examined critically, not even the prospect of lower interest rates can keep the FANGs levitating.

Cruise Path to a Soft Landing (???)

While the FANGs made a crash landing, the top-down macro world is providing much news that investors had been hoping to hear. The European Central Bank met and hiked rates by 75 basis points as expected, but President Christine Lagarde signaled very clearly in her press conference (which you can see here) that we should expect the rate of increases to slow down from now on. Previously, the ECB had alerted that it expected to raise rates at “the next several meetings.” Now, under questioning, Lagarde was much more hedged: “Our sense is that we have already made significant progress, as I said. We are not done yet. There is more ground to cover, and the question of what that pace will be — what will be the magnitude of future rates — will be determined meeting by meeting and will be data dependent.”

That had an immediate impact on the implicit path of interest rates projected by the overnight index swaps market. Expectations had risen sharply over the summer, but Lagarde’s words helped cut projected rates for next year by 25 basis points:

This isn’t a “pivot” toward lower rates. Lagarde said inflation was “far too high, and will stay high for a while,” and predicted an economic slowdown, but it’s plainly a deceleration and it makes it that much easier for the Federal Reserve also to start paving the way to slow its pace during next week’s meeting. It also weakened the euro, which had just exceeded parity to the dollar for the first time in a month.

Shortly after, US GDP numbers for the third quarter were released, and were almost perfectly “Goldilocks” (not too hot, not too cold) as far as the market is concerned. GDP is growing, but consumption is slowing, a combination that should allow some kind of “soft landing.” Bond yields did reduce, with the 10-year Treasury yield dropping below 4% for the first time in two weeks, but not in a way that saved the stock market from a tough day.

One reason for this is that the third quarter’s GDP number of 2.6% is already well in the past. Friday’s release of Personal Consumption Expenditure inflation data, the Fed’s favorite measure and within days of a monetary policy decision, promises to be far more important. Expectations for PCE are widely dispersed, but everyone thinks that they will show a rise. If the number comes in at the bottom of the range of expectations, that could have a much powerful effect on bond yields:

Friday also brings the employment cost index, which comes out only quarterly and is closely monitored by the Fed for any sign of an incipient wage-price spiral. That could have a major impact on the central bank’s flight path from here. Tom Hainlin, national investment strategist at US Bank Wealth Management, said by phone: “Is it a shallow glide lower? Is it a big stair step lower in terms of the outlook for 2023? That’s still unknown. GDP was backward looking. It’s not really going to be a key driver of the market. That employment cost number is going to be a key driver.”

As the FANGs continue their crash landing, there are still hopes of a soft landing for the bond market. That could yet translate into one for the stock market as well, as some ludicrous valuations are corrected, and capital diverts to some places that have been starved of it but could use it. The readjustment from the pandemic seems to be over — but bonds and tech stocks are reassessing assumptions that have stood for a couple of decades or more. This is tricky to engineer. The path to a safe landing might exist, but it’s a perilous one.

  • Financial Markets
  • Monetary Policy
Previous articleMarch 21, 2023Society's Technical Debt and Software's Gutenberg Moment.@pkedrosky argues that AI like ChatGPT is going to bend the cost curve on software production allowing us to run off “immense, society-wide technical debt,” resulting in significant consumer surplus as better software diffuses through the economy.Next articleMarch 21, 2023SVB-Fueled Turmoil Junks Lessons of the Global Financial Crisis.@greg_ip notes that between 2007 and 2022 the share of Treasurys as a percentage of banks total assets went from 12% to 20% over the same period the uninsured share of domestic deposits rose from 28% to 45%.
Showing 247 database articles primarily about Financial Markets

Earnings Will Be Spectacular. It May Not Be Enough

AI Summary. Corporate profit margins, long regarded as one of the economy's most reliably mean-reverting series, have risen continuously so far this century. Measured through the national income accounts used in calculating GDP, profits now take a larger share of the economy than on the eve of the 1929 crash.

John Authers Bloomberg
Date Posted:
October 8, 2026
Is Database:
Database

Since 2000, post-tax corporate profits as a share of GDP have trended upward across cyclical setbacks and are now near an all time high, above their 1929 level.

Have corporate profit margins stopped reverting to the mean?

Core argument: Corporate profits measured in the National Income and Product Accounts take a larger share of the U.S. economy than on the eve of the 1929 Great Crash.

Throughout the 20th century, profit margins were regarded as one of the purest mean-reverting series in the economy. So far this century, however, margins have done nothing but rise. Measured with the National Income and Product Accounts, part of the GDP calculation, profits are currently taking a bigger share of the economy even than on the eve of the Great Crash in 1929. The series comes with a lag, so we can assume the profit share on this basis is comfortably at a record by now.

Takeaways by Macro Roundup® AI

  1. Corporate profits measured in the National Income and Product Accounts take a larger share of the U.S. economy than on the eve of the 1929 Great Crash.
  2. Profit margins were regarded throughout the 20th century as one of the purest mean-reverting series in the economy, yet so far this century they have done nothing but rise.
  3. The National Income and Product Accounts profits series comes with a lag, so the profit share on this basis can be assumed to be comfortably at a record.

Related Articles:

  • US Focus: The Effect Of Soaring Profits — US nominal pre-tax corporate profits in the national accounts grew 23% over the past year, a pace not seen outside post-recession spikes since the mid-2000s. Wider margins were the key driver, as domestic profit growth far exceeded the 8% rise in corporate value added, pushing margins near all-time highs while the labor share hit new lows.
  • The Post‑COVID Decline in the Labor Share — The share of US national income paid to workers fell 1.6 percentage points below its pre-pandemic level, reaching a post-war low. The authors find this decline stems mainly from changes within industries rather than shifts in activity across sectors, following cyclical patterns seen in earlier recessions.
  • Are US Corporate Profit Margins Too High? — US after-tax non-financial corporate profit margins remain elevated by historical standards, estimated at 7.6% versus a post-1949 high of 8.2%, while employee pay as a share of non-financial corporate gross value added has fallen from 66% to 56%. One argument holds that subdued demographic growth leads companies to prioritize maximizing margins over expanding capacity.
  • Financial Markets
  • GDP
  • Productivity
  • Workforce
    • Inequality
    • Wages/Income

The Bond Market Reckoning Has Only Begun

AI Summary. The gap between French and German 10-year government bond yields has widened at a pace matched only during the euro zone sovereign debt crisis. France and the UK have less room than the US to close deficits with tax increases, as tax revenues equal 43.9% of GDP in France and 35.3% in the UK versus 25.2% in the US.

John Authers Bloomberg
Date Posted:
September 30, 2026
Is Database:
Database

The spread between 10-year French OATs and German Bunds has widened at a pace seen only during the eurozone sovereign-debt crisis. John Authers warns that France “satisfies all the classic conditions for a major debt crisis.”

Do high tax burdens limit France and the UK's deficit options?

Core argument: The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.

Only in the worst days of the euro zone’s sovereign debt crisis, in 2011 and 2012, has the [spread of 10-Year French OATS over German Bunds] risen so fast. Talk of a second euro-zone crisis, this time with an epicenter in Paris, is growing, and it’s easy to see why. Why is this more of a problem for France and the UK? Beyond their deficits, they also shoulder much higher tax burdens than the US. Tax revenues are 25.2% of GDP in the US, the lowest of the major developed economies - but 35.3% in the UK and 43.9% in France. It’s hard to imagine after decades of tax-cutting, but a US politician could deal with the deficit fairly easily with a tax hike. It’s not clear that option is open to French lawmakers, even if they could somehow persuade voters to go along with them. The populist politicians of left and right, who currently look well placed in next year’s presidential elections, are in any case unlikely to try.

Takeaways by Macro Roundup® AI

  1. The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.
  2. Tax revenues equal 25.2% of GDP in the US, the lowest among major developed economies, versus 35.3% in the UK and 43.9% in France, leaving American politicians more room to close the deficit with a tax hike.
  3. Populist politicians of left and right, currently well placed for France’s presidential election, are unlikely to attempt tax increases to address the deficit.

Related Articles:

  • French PM to Freeze Emmanuel Macron’s Pension Reform Until 2027 — France's prime minister said he would suspend the plan to raise the retirement age to 64 until the next presidential election, while asking parties to agree on other savings. He outlined a €30bn package of spending cuts and tax rises to cut the deficit to 4.7% of national output from 5.4%.
  • Soaring Bond Yields, Gaping Deficits and Towering Debts: What Could Go Wrong? — An analysis of 22 rich countries estimates that if each refinanced its entire debt at current five-year bond yields, Britain would need the largest primary surplus to stabilize its debt-to-GDP ratio, about 1.5%, followed by Italy at 1.4%, France at 1.2% and America at 1%.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Financial Markets
  • Fiscal Policy
    • Fiscal Deficits
    • Government Spending
    • Taxation
  • GDP
  • Politics

Foreign Capital Flows Into US Stocks Hit Record As Appetite For Debt Fades

AI Summary. Foreign investors made a record $942bn in net purchases of US stocks and investment fund shares over 12 months, the highest rolling 12-month total in Treasury data going back to 1985. Foreign demand for US debt securities moved in the opposite direction, falling to a net $188bn in the second quarter from $314bn in the first.

Michael Taffe and George Steer Financial Times
Date Posted:
September 28, 2026
Is Database:
Database

Foreign investors bought a record net $426B of US equities and fund shares in Q2, up 62% y/y, part of a record $942B in the 12 months through July. Overseas investors bought a net $188B of US debt securities in Q2, down from $314B in Q1.

Are foreign investors shifting from US debt into US stocks?

Core argument: Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.

Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, accelerating a shift in overseas investment towards American stocks and away from debt. The flows represented the highest rolling 12-month total in Treasury data going back to 1985. Net purchases of US equities and investment fund shares by foreign investors jumped to $426bn in the second quarter, up 62% from the same period in 2025, and surpassing the previous quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis. Foreign demand for US debt moved in the opposite direction. Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.

Takeaways by Macro Roundup® AI

  1. Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.
  2. Net foreign purchases of US equities and investment fund shares reached $426bn in the second quarter, up 62% from the same period in 2025 and above the prior quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis.
  3. Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.

Related Articles:

  • World’s Unusually High Dollar Exposure Risks Fueling Selloff — Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
  • Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow — International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
  • A Catalyst For The AI Bubble Break — Historically, controlling for valuations, a 1% rise in the share of the market represented by initial public offerings has been associated with roughly a 4% decline in prices. With large artificial-intelligence company listings expected and share issuance exceeding buybacks, equity supply could shift from shrinking about 1% a year to growing near 5%, implying returns roughly 20% below average.
  • Financial Markets
  • GDP
    • Savings Glut/Trade Deficit

De-reservification, Not De-dollarization

AI Summary. Much of the official-sector inflow into the U.S. now comes from investors who are not traditional reserve managers, and those flows remain heavily tilted toward the dollar and toward risk assets rather than Treasuries. The author argues this shift in the global investor base helps explain why Treasuries trade at a discount while the dollar retains a premium.

Brad Setser and Alex Etra Council on Foreign Relations
Date Posted:
September 16, 2026
Is Database:
Database

The stock of global dollar reserves has been roughly stable over the past decade. The world is not moving away from the dollar: dollar assets are shifting from official holdings of Treasurys towards private and quasi-sovereign holdings of risk assets.

Why do Treasuries trade at a discount while the dollar keeps premium?

Core argument: Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.

Most of the current flow into the US from the “official” sector is coming from investors who are not classic reserve managers. Those flows remain heavily tilted toward the dollar, at least for now. Any real de-dollarization would likely occur first among these investors. Put differently, the dollar’s global role is increasingly as a source of returns, not a source of safety. The foreign bid, private and public, is for risk, not for Treasuries. It is currently fashionable in some circles to point to the diminution of the “convenience yield” on Treasuries even while the U.S. dollar continues to enjoy such a privilege. But the shift in the global investor base and their apparent portfolio preference for U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and the convenience yield on the USD.

Takeaways by Macro Roundup® AI

  1. Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.
  2. The dollar’s global role is increasingly as a source of returns rather than safety, with the foreign bid, private and public, directed at risk assets rather than Treasuries.
  3. The shift in the global investor base toward U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and that on the dollar, and suggests the “profit dollar” is likely trading at a historical premium.

Related Articles:

  • Financial Innovation and the International Monetary System — The dollar accounts for 59% of cross-border payments messaged through SWIFT, far ahead of the euro's 14%, and its share of foreign exchange turnover has risen gradually to about 90% of the 200% total since 2010. Official holdings of U.S. Treasuries have leveled off near $4tn while foreign private holdings rose from $1tn to over $5tn.
  • Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow — International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
  • World’s Unusually High Dollar Exposure Risks Fueling Selloff — Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
  • Financial Markets
  • GDP
    • Savings Glut/Trade Deficit
  • Monetary Policy

Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow

AI Summary. International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.

Emily Herbert and Ian Smith Financial Times
Date Posted:
September 15, 2026
Is Database:
Database

International net flows into US equities reached 2.8% of GDP in the year through June, exceeding net inflows into Treasuries of 2% of GDP. Outside brief episodes during the pandemic and the aftermath of the GFC, this is the first time this century that equity inflows have surpassed Treasury inflows.

Are foreign investors now buying more US stocks than Treasuries?

Core argument: Foreign inflows into US stocks averaged 2.8% of US GDP in the year to June, overtaking Treasuries at 2% of GDP, according to Deutsche Bank analysis of US Treasury data.

International flows into US stocks reached 2.8% of US GDP on average in the year to June, overtaking Treasuries — at 2% 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. 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.

Takeaways by Macro Roundup® AI

  1. Foreign inflows into US stocks averaged 2.8% of US GDP in the year to June, overtaking Treasuries at 2% of GDP, according to Deutsche Bank analysis of US Treasury data.
  2. Deutsche Bank’s analysis marks the first time this century that foreign equity flows have exceeded Treasury flows, outside brief episodes during the Covid-19 pandemic and the aftermath of the global financial crisis.
  3. The S&P 500 is on track for a fourth straight year of double-digit gains, powered by vast AI investment that is driving profit margins to new highs, according to FactSet data stretching back to 2009.

Related Articles:

  • World’s Unusually High Dollar Exposure Risks Fueling Selloff — Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
  • Foreigners Rebuff ‘Sell America’ and Buy a Net $1.6 Trillion in Assets — Treasury Department data show overseas investors bought a net $1.55tn of long-term US financial assets, up from $1.18tn the prior year, including $720bn in equities and just under $409bn in Treasury notes and bonds. China was a net seller of $208.6bn, with its Treasury holdings ending at $683.5bn.
  • The Global Balance Sheet 2026: Imbalance And Divergence — Only 20% of global household wealth growth came from net new investment in real assets such as machinery, housing, infrastructure and intellectual property, down from a 30% average over the prior quarter century. Nearly 60% came from asset prices rising faster than inflation and negative net worth in other sectors.
  • Financial Markets
  • GDP

Interest Rates and Stock Prices: An Old Debate Resurfaces!

AI Summary. An estimate of the intrinsic 10-year US Treasury rate, built from actual inflation and real economic growth, far exceeded the actual 10-year Treasury rate after inflation surged, and that gap has since narrowed to roughly 4.75% actual versus 5.41% intrinsic.

Aswath Damodaran Musing on Markets
Date Posted:
September 14, 2026
Is Database:
Database

Damodaran’s “intrinsic” 10-year Treasury rate—calculated as US real GDP growth plus inflation—has broadly tracked the nominal 10-year Treasury yield since 1962. As of early September 2026, the 10-year yield of ~5% was 41bp below his 5.41% intrinsic-rate estimate.

Do long-term Treasury rates line up with inflation and growth fundamentals?

Core argument: As of September 2026, the US 10-year Treasury rate stood at 4.75% while the intrinsic 10-year rate was 5.41%, a gap of 66 basis points.

[The graph shows] the actual inflation rates and real GDP growth rates for the US, going back to 1962, and [the implied] intrinsic 10-year treasury rate (the cumulative column) and actual 10-year treasury rate each year. When inflation surged in 2022, interest rates went up, but since the rates that I am tracking are long term rates, the intrinsic risk free rate vastly exceeded the actual rate that year, but the difference has narrowed over time, and almost dissipated by September 2026 (when the US 10-year treasury bond rate was [5%] and and the intrinsic ten-year rates yielded 5.41%).

Takeaways by Macro Roundup® AI

  1. As of September 2026, the US 10-year Treasury rate stood at 4.75% while the intrinsic 10-year rate was 5.41%, a gap of 66 basis points.
  2. When inflation surged in 2022, the intrinsic risk-free rate vastly exceeded the actual 10-year Treasury rate, and that difference has narrowed since.
  3. The intrinsic 10-year Treasury rate is built from actual US inflation and real GDP growth rates going back to 1962 and compared against the actual 10-year Treasury rate each year.

Related Articles:

  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
  • US 30-Year Bonds Erase Gains From Treasury’s Buyback Surprise — US Treasuries erased nearly all gains that followed the Treasury Department's surprise decision to increase buybacks of longer-dated bonds, with the 30-year yield rising above 5.27% and the 10-year touching 4.71%. The reversal signals the move has done little to ease concern about surging government debt.
  • Annual Economic Report — Public debt in advanced economies has risen steadily, limiting governments' ability to cushion higher energy prices. Cyclically adjusted primary deficits averaged 1.9% of GDP in advanced economies since 2022 versus 1.1% over the two preceding decades, and 1.8% in emerging markets versus 0.1% from 2000–2019.
  • Financial Markets
  • Fiscal Policy
    • Fiscal Deficits
    • Government Spending
  • GDP
  • Monetary Policy
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