September 28, 2026 — Global capital flows into U.S. assets are becoming increasingly divided. Foreign investors made a record $942 billion in net purchases of U.S. equities and investment fund shares over the 12 months through July, while demand for U.S. Treasuries weakened. The divergence shows that international investors are still allocating heavily to dollar assets, but with a stronger preference for U.S. corporate earnings and AI-driven growth over fixed-income exposure.
For global markets, the key question is whether strong earnings growth can continue to offset higher financing costs and Treasury yields. This divergence also matters for broader risk-asset liquidity, including Bitcoin and the crypto market, as investors reassess the relative appeal of equities, bonds and other dollar-denominated assets.
U.S. Equity Inflows Reach a Record as Foreign Capital Favors Stocks
Foreign demand for U.S. equities has reached an unprecedented level. In the 12 months through July, overseas investors made approximately $942 billion in net purchases of U.S. equities and investment fund shares, the highest rolling 12-month total since comparable records began in 1985. The second-quarter inflow alone reached about $426 billion.
The scale of these inflows suggests that higher interest rates have not prevented international investors from increasing their exposure to U.S. stocks. Instead, expectations for corporate earnings, particularly around artificial intelligence and technology, are helping equities absorb higher discount rates.
This does not mean foreign capital is broadly returning to all U.S. assets. Demand for Treasuries has weakened during the same period, creating a clear divergence between equity and fixed-income allocation. The sustainability of this trend will depend increasingly on whether earnings growth can continue to justify elevated equity valuations.
Treasury Yields Rise as Inflation, Supply and Fed Policy Add Pressure
The bond market is facing a different set of constraints. The 10-year U.S. Treasury yield has moved to its highest level since 2007, while the spread between two-year and 10-year yields has narrowed to around 17 basis points. Recent market moves have reflected both stronger economic conditions and expectations that interest rates may remain elevated for longer.
Higher Treasury yields increasingly reflect more than inflation compensation. Large government financing needs, elevated Treasury issuance and additional corporate borrowing linked to AI investment are competing for available capital. With the federal deficit remaining around 6% of GDP, the supply of fixed-income securities adds another factor to the term premium and longer-term borrowing costs.
A further rise in short-term rates could also put pressure on the yield curve. If the curve flattens further, tighter financial conditions could eventually reach bank net interest margins and corporate financing costs, creating a broader transmission channel from monetary policy into the real economy.
Japan's Rate Path Adds Another Variable to Global Capital Flows
Japan is becoming an increasingly important part of the global rate equation. The Bank of Japan is currently guiding the uncollateralized overnight call rate to around 1.25%, with the rate at that level since September 24. The central bank's next monetary policy meeting is scheduled for October 29–30.
The minutes from the July 30–31 meeting, released on September 28, provide additional insight into how policymakers were assessing the timing and pace of future policy normalization.
If Japanese interest rates continue to move higher relative to U.S. rates, the relative appeal of yen-denominated assets could change. That could influence Japanese investors' overseas allocations and, in turn, demand for U.S. bonds and other dollar assets.
The timing of further Bank of Japan action remains dependent on inflation, economic conditions and exchange-rate developments. The October meeting therefore becomes an important event for markets monitoring Japanese capital flows and global bond yields.
AI Investment Supports Equities but Raises the Cost of Capital Question
The central issue for U.S. equities is whether AI-driven productivity gains can translate into earnings growth large enough to absorb higher financing costs.
Strong technology investment has helped support corporate earnings expectations even as Treasury yields rise. This creates an unusual market structure in which equity demand remains strong while the bond market faces pressure from inflation, fiscal issuance and changing monetary-policy expectations.
The inflation backdrop remains relevant. August core CPI increased 2.4% year over year, above the Federal Reserve's 2% target, while monthly core CPI rose 0.3%. The data indicate that underlying price pressures have not yet returned fully to the Fed's target.
If inflation remains above target for an extended period, monetary policy may need to remain restrictive. That would increase the importance of future earnings growth in determining whether U.S. equities can continue to absorb higher discount rates.
What Record U.S. Equity Inflows Mean for Crypto Liquidity
The divergence between U.S. equities and Treasuries also matters for broader risk-asset liquidity, including crypto markets.
Record foreign demand for U.S. equities shows that global investors are still willing to allocate capital toward growth-oriented assets despite higher interest rates. At the same time, rising Treasury yields increase the return available from dollar-denominated fixed-income assets and can tighten financial conditions across markets.
For Bitcoin and other crypto assets, the key transmission channels are therefore U.S. Treasury yields, Federal Reserve expectations, the U.S. dollar and the direction of global liquidity. Strong equity inflows do not automatically translate into crypto inflows, but changes in the allocation between stocks, bonds and other risk assets can influence the broader liquidity environment.
Traders can monitor these macro signals alongside Bitcoin price action and volume when assessing short-term market conditions. BTC and other major crypto assets can also be accessed through perpetual futures markets, where changing rate expectations can quickly affect volatility and positioning.
U.S. Stocks and Treasuries Face Different Capital Allocation Pressures
The latest capital-flow data highlight a growing divergence within dollar-denominated assets. Foreign investors are directing record amounts toward U.S. equities, while Treasury markets are dealing with higher yields, fiscal supply and changing expectations for monetary policy.
Whether this divergence persists will depend heavily on the interaction between earnings growth, inflation and financing costs. AI-related productivity gains could strengthen corporate earnings and expand supply, but persistent inflation would keep pressure on monetary policy and market rates.
For global markets, the key indicators to watch are U.S. Treasury yields, Federal Reserve policy expectations, Japanese monetary-policy decisions and corporate earnings. Together, these factors will help determine whether capital continues to favor U.S. equities while longer-duration bonds and other rate-sensitive assets face tighter financial conditions.
