Institutional Investors Shift Billions from U.S. Treasuries to Corporate Debt Amid Fiscal Concerns

A seismic shift is underway in fixed-income markets as institutional investors abandon U.S. government bonds at an unprecedented pace. June saw $3.9 billion flee Treasuries while $10 billion flooded into high-grade corporate debt across U.S. and European markets. The exodus accelerated in July with $13 billion pouring solely into U.S. investment-grade corporates—the largest monthly inflow since 2015.

The MOVE reflects crumbling confidence in what was long considered the world's safest asset. Ballooning fiscal deficits and soaring interest costs are transforming Treasury securities from bedrock investments into liability traps. "We began reducing sovereign exposure last year and maintain that stance," says Michaël Nizard of Edmond de Rothschild Asset Management, articulating a sentiment spreading through Wall Street.

Structural pressures are compounding the retreat. The Congressional Budget Office projects Trump-era tax cuts will add $3.4 trillion to federal deficits over the coming decade. Debt service costs could consume 30% of government revenue by 2035—a threefold increase from 2021 levels. Moody's recent downgrade warning underscores the deteriorating calculus for bondholders.