Key facts
- Foreign demand for US corporate bonds has remained robust despite rising Treasury yields and interest rates, according to Goldman Sachs.
- Net foreign purchases of US corporate bonds totaled $251 billion through the end of June.
- Foreign investors own about 29% of the US corporate bond market.
- European investors have accounted for 52% of net foreign purchases of US corporate bonds since early 2022.
- Goldman Sachs expects any further reductions in Japanese holdings of US investment-grade and high-yield bonds to be manageable.
Goldman Sachs has found that foreign demand for US corporate bonds has remained strong despite rising Treasury yields and interest rates, countering a key fear in the bond market. Through the end of June, net foreign purchases of US corporate bonds reached $251 billion, putting the market on track to approach last year's record of $392 billion.
Amanda Lynam, chief credit strategist at Goldman Sachs, noted in a Tuesday note that this sustained appetite for US credit is significant given recent headwinds such as dollar fluctuations and hedging costs. Foreign investors hold approximately 29% of the US corporate bond market, making their demand crucial. This analysis comes as investors evaluate the impact of higher borrowing costs on the bond market ahead of the Federal Reserve's upcoming policy decision.
The benchmark 10-year Treasury yield closed at 5% on Tuesday, its highest level since 2007, as markets anticipate interest rates remaining elevated for an extended period. While attention has focused on Japan's potential pullback from US assets due to rising domestic yields, Lynam believes any reduction in Japanese holdings would be "manageable." Goldman Sachs maintains that the size and depth of the US corporate bond market provide few alternatives for global investors, suggesting a floor will remain under foreign purchases of US credit.