Last year, markets acted differently than usual when politics got tense. Normally, investors rush into US bonds during stress, but in 2025 and early 2026, they didn’t, at least not as strongly. The change wasn’t dramatic, but it was enough to shift prices and signal a subtle shift in investor behavior.
Foreign ownership of US Treasuries hit record levels in 2025, with Europe buying hundreds of billions after April. On the surface, it seemed like business as usual. But looking at prices tells a different story. During political stress, US Treasury yields rose instead of falling, and the dollar weakened against the euro. That combination is unusual. Typically, global stress pushes yields down and lifts the dollar as money moves to safety. This time, “safe” didn’t behave like safe.
Rising yields mean buyers demand higher compensation, and a falling dollar means capital isn’t staying in the US. Investors weren’t just selling bonds, they were rethinking where they wanted to be paid.
Bonds often move before stocks because they are more practical. Stocks react emotionally to headlines, but bonds shift when assumptions about risk or policy change. That’s why yields jumped during the tariff shock in April 2025 and the Greenland escalation, while equities fell and then recovered quickly. Rising long-term yields also feed directly into US interest costs, giving the bond market real power to influence policy.
Record foreign holdings can be misleading. Treasury data show where bonds are held, not who ultimately owns them. European financial centers act as custodians for global capital, which inflates Europe’s apparent role as a buyer. Rising prices also contributed to higher foreign exposure, not just new purchases.
Short-term data show more telling patterns. During political stress, US equity funds saw outflows while European bond flows rose. Nordic pension funds and China reduced their holdings, signaling that investors no longer see US Treasuries as the only safe option.
US bonds historically benefited from more than liquidity, they relied on trust. Investors accepted low yields because they trusted the US system, its scale, alliances, rule of law, and track record. Those pillars still exist, but some appear weaker now. The market is quietly signaling that the old certainty of US bonds may be eroding.
