Investors have been concerned that rising yields would push international buyers away from the US corporate bond market. So far, that has not occurred.
Goldman Sachs says that, despite a steep increase in Treasury yields this year, overseas demand for US corporate bonds has stayed strong.
By the end of June, foreign investors had made net purchases of US corporate bonds worth $251 billion, putting 2026 on track to come close to last year’s record $392 billion, according to Lynam’s analysis.
Amanda Lynam, Goldman Sachs’ chief credit strategist, wrote in a note Tuesday that the persistence of foreign appetite for US credit is noteworthy despite several recent headwinds, including shifts in the dollar’s strength and hedging costs.
Foreign investors hold roughly 29% of the US corporate bond market, making them an important source of demand.
The Goldman Sachs note arrives as investors consider whether higher borrowing costs will create additional strain for the bond market before the Federal Reserve’s policy decision on Wednesday.
The benchmark 10-year Treasury yield ended Tuesday at 5% after reaching its highest level since 2007, as investors increasingly anticipate that interest rates will remain elevated for longer.
Japan’s retreat may be less consequential
Since the beginning of 2022, European investors have represented 52% of net foreign purchases of US corporate bonds, more than twice Asia’s 21% share.
Even so, recent market focus has been on Japan, where investors have been monitoring whether rising domestic bond yields and policymakers’ appeals for more investment at home could encourage institutions to move money back into Japanese assets.
Lynam, however, expects any additional declines in Japanese holdings of US investment-grade and high-yield bonds to be manageable within the broader market context.
Despite higher Treasury yields, Japan’s policy change, and years of discussion about foreign demand for US assets, Goldman Sachs says few alternatives match the size and depth of the US corporate bond market.
Lynam said Goldman Sachs continues to expect foreign purchases of US-domiciled credit to retain a floor and views a broader repatriation of flows as unlikely.