Foreign Capitals Accelerate U.S. Bond Purchases: Nearly Three-Year Record

The U.S. credit market is experiencing a moment of exceptional appeal for international investors. According to JPMorgan Chase’s analysis conducted in January, capital flows into U.S. corporate bonds have reached unprecedented levels, recording the highest purchase volumes since February 2023.

Attractive Yields and Lower Costs Drive Demand for Corporate Bonds

January data confirm that U.S. bonds continue to attract significant foreign capital. The stable interest rate environment, combined with a substantial reduction in currency hedging costs, has created ideal conditions for international portfolio managers. Jin10 highlights that this combination of factors has neutralized much of the risks associated with currency fluctuations, making American credit assets particularly attractive to foreign investors.

According to data provided by JPMorgan strategists Nathaniel Rosenbaum and Silvi Mantri, the market showed signs of widespread activity early in the year. These macroeconomic factors have favored the flow of significant capital into the bond segment.

Monthly Inflows Reach Record Levels: January Data Analysis

The average daily net purchase of bonds in January reached $332 million, setting a monthly record since 2023. However, weekly analysis reveals a more complex dynamic: in the last seven days of January, inflows slowed considerably, with the daily average dropping to $240 million, a 59% decrease compared to the previous week.

This final slowdown could signal early signs of caution among foreign capital managers, although the overall monthly figure remains robust and reflects continued interest in exposure to the U.S. market.

Weakening Dollar: The Critical Factor for Foreign Capital Flows

Wall Street is closely monitoring the potential role of further depreciation of the U.S. dollar. In theory, a weakening of the USD could reverse the trend of bond purchases, triggering a broader withdrawal of foreign capital from U.S. assets.

However, current data suggest an unexpected resilience of foreign allocations in bonds. So far, dollar weakness has not led to significant capital shifts, indicating that international investors maintain confidence in the credit quality of American bonds. This behavior suggests that the attractive fundamentals of the credit market continue to outweigh currency considerations in the decision-making process of foreign managers.