I noticed an interesting thing about foreign capital flows into the States. Foreign investors are buying U.S. corporate bonds at a pace not seen in nearly three years, and frankly, the movement is quite significant. In January, the average daily net purchases reached $332 million, the highest since February 2023.

What makes high-yield bonds attractive right now is the combination of stable yields and lower hedging costs compared to before. JPMorgan strategists have noted that although the last week of January saw a slowdown (with inflows dropping to $240 million daily), the overall trend for the month remains solid. Interestingly, despite chatter about a weakening dollar, foreign investors are not pulling capital out of American assets as some feared.

What strikes me is the resilience of foreign allocations in high-yield bonds. Wall Street is wondering if a weakening dollar could trigger a larger capital flight, but so far, it’s not happening. It seems that the intrinsic value of high-yield bonds is strong enough to keep foreign investors steady, at least for now. This situation warrants monitoring in the coming months.