US exceptionalism roars back

After small outflows in April, foreign investors returned in record numbers in May

A month ago, I wrote a post about foreign portfolio flows into the US, which were only modestly negative in April after the turbulence of “Liberation Day.” The US Treasury just published the latest data for May, which show record inflows into Treasury bonds and notes as well as US equities. All this is notable because so many commentators prophesied the end of US “exceptionalism” after the turbulence of recent months. The reality is that markets are far more accepting of all the ups and downs than people realize. US “exceptionalism” is alive and well.

The two charts above show the same data, which are published by the US Treasury six weeks after the end of every month and cover net foreign inflows into long-term US assets, spanning flows into US equities (purple), corporate debt (blue), Agency debt (orange) and Treasury notes and bonds (red). The left chart focuses on more recent data, giving monthly flows from January 2018 through May 2025 in billions of Dollars. The right chart gives a longer-term perspective, showing 12-month rolling sums of these flows from January 2000 through May 2025.

The left chart shows that foreign net buying of Treasuries and US equities came roaring back in May, after only tepid outflows in April. The right chart shows that net foreign inflows are near their all-time high of July 2023, which was the peak of the US “exceptionalism” narrative in markets. The truth is that markets are far more tolerant of all the policy ups and downs than people think. The hurdle for the US to experience genuine capital flight is high and certainly wasn’t breached in April.

These flows suggest that the fall in the Dollar may have been driven by a relatively small segment of the market, which is another way of saying that small outflows led to disproportionate moves in global foreign exchange markets. This could reflect thinner liquidity at a time of heightened risk aversion, which is fairly common when markets are turbulent. That makes price action - and the fall in the Dollar - a noisy proxy for what investors really think. They seem to still be very positive on the US.