Investors are moving away from U.S. government bonds in favor of corporate debt, signaling a potential shift in decades-long market thinking. In June alone, $3.9 billion was pulled from U.S. Treasuries, while $10 billion flowed into investment-grade corporate bonds in the U.S. and Europe, according to EPFR data.
The trend continued into July, with U.S. high-grade corporate bonds seeing a record $13 billion in net inflows—the highest since 2015. Rising U.S. fiscal deficits, due to tax cuts and mounting interest payments, are eroding confidence in Treasuries, especially after Moody’s cut the U.S. credit rating to Aa1 in May.
While some fund managers like Edmond de Rothschild and BlackRock are leaning toward credit, others warn that tight spreads—currently well below decade averages—make corporate bonds look expensive. Still, strong corporate earnings are helping justify the shift, with more companies beating estimates this season compared to last year.