The Ultimate Guide to Global Investors' Increase in US Corporate Bond Holdings
Citi's latest report reveals a staggering $11.1 billion increase in global investors' holdings of US-issuer corporate bonds in June, with year-to-date foreign demand reaching an impressive $172 billion. This influx of foreign capital has been instrumental in absorbing the net supply of US investment-grade bonds, with foreign investors accounting for 44% of the total - surpassing the average from previous years.
As the trend of foreign investment continues into July, private investors purchased $27 billion of long-term US Treasuries in June, while foreign officials reduced their sales from $15 billion in May to $2.2 billion in June. The total foreign private purchases in the first half of the year amounted to a whopping $352 billion, driven by slowing supply in G10 countries and attractive yields offered by US Treasuries.
In the T-bills market, foreign investors bought $6.2 billion in June, with Japanese officials notably increasing their holdings by $12 billion. Despite an overall net increase of $72 billion in foreign US Treasury holdings in June, Citi applied a negative valuation adjustment due to a rally in 5-year US Treasuries.
European investors, led by France with a $26 billion investment, continued their strong demand for long-term US Treasuries, marking the ninth consecutive month of net purchases. Canada followed as the second-largest buyer at $18 billion.
These investments are driven by various factors, including low supply in European government bonds, yield differentials between US Treasuries and bund yields, and elevated energy prices. On the other hand, the Cayman Islands emerged as the largest seller of long-term US Treasuries in June, likely due to hedge fund strategies and tightening swap spreads.
Looking ahead, Japanese officials are expected to slow down their pace of selling, as the rate has recently declined. Additionally, China, which was a net seller in the first half of the year, became the biggest official buyer in June at $7 billion, followed by India at $5 billion.
With the exchange rate returning to levels seen at the start of the year, Chinese officials are likely to repurchase some of the US Treasuries sold earlier, while India's consistent buying trend is expected to continue. Overall, this influx of foreign investment in US corporate bonds and Treasuries has significant implications for global markets and can impact various sectors of the economy.