United States: Equities favored over Treasuries – BNY
Geoff Yu at BNY argues that the loss of some U.S. exceptionalism has not translated into a broad exodus from U.S. assets. Cross-border investors maintain high U.S. equity allocations, supported by technology and AI themes, while trimming Treasury holdings as curve steepening raises duration risk.
BNY's Geoff Yu contends that the erosion of U.S. exceptionalism has not led to a large-scale migration away from American assets. Cross-border investors continue to hold substantial equity positions in the U.S., propelled by tech and AI trends, while reducing Treasury exposure due to increased duration risk from steepening yields.
The report anticipates that U.S. asset allocation will remain robust. While the idea of "selling America" is frequently debated, it is rarely executed in portfolios. The tech and AI narrative powering U.S. equities persists, and U.S. equities now constitute a larger share of foreign portfolios, nearing yearly highs. Treasury holdings in sovereign bonds have decreased, reflecting the effects of yield curve steepening, but cross-border investors have maintained elevated Treasury positions since the Fed's decision, surpassing early July lows.
The analysts remain optimistic that U.S. asset positioning will stay strong due to structural factors, and the equity bias within U.S. assets is becoming more favorable. Within U.S. assets, maintaining equity exposure while managing Treasury duration more actively is recommended, as duration risk and fixed-income volatility continue to be the primary challenges.
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