Foreign Demand for US Bonds Hits $251 Billion Despite Yield Spike
Net foreign purchases of US corporate bonds reached $251 billion by June, defying fears that higher yields would drive investors away.
Net foreign purchases of US corporate bonds totaled $251 billion through the end of June. This figure puts the year on pace to nearly match the record $392 billion from last year. Investors have worried that rising Treasury yields would push foreign buyers out of the market. That outflow has not materialized.
Foreign investors own approximately 29% of the US corporate bond market. They remain a critical source of demand for US credit. Goldman Sachs reports that this appetite has persisted despite significant headwinds. These include dollar strength fluctuations and higher hedging costs.
European buyers lead recent inflows
European investors accounted for 52% of net foreign purchases since early 2022. Asia’s share stood at 21% over the same period. European demand is more than double that of Asian investors. This shift reflects changing risk preferences in global capital markets.
Japanese repatriation risk remains limited
Market attention has focused on Japan due to rising domestic bond yields. Policymakers there are calling for greater local investment. However, Goldman Sachs expects any reduction in Japanese holdings to be manageable. The firm views a broader repatriation of flows as unlikely.
US market depth lacks alternatives
The benchmark 10-year Treasury yield closed at 5% on Tuesday. This level marks the highest since 2007. Investors now expect interest rates to stay higher for longer. Goldman Sachs notes few alternatives match the size and depth of the US corporate bond market. A floor remains under foreign purchases of US-domiciled credit.
