The biggest concern in the bond market has yet to occur! Goldman Sachs: Rising US bond yields will not prevent overseas buyers from pouring into US corporate bonds

The Zhitong Finance App learned that investors have always feared that rising yields will cause overseas buyers to withdraw from the US corporate bond market, but so far, this has not happened. Despite a sharp rise in US Treasury yields this year, Goldman Sachs said overseas investors' demand for US corporate bonds is still strong.

According to an analysis by Amanda Lynam, chief credit strategist at Goldman Sachs, by the end of June, the total net purchases of US corporate bonds by overseas investors reached US$251 billion, which means that net purchases for the full year of 2026 are expected to be close to the record US$392 billion last year.

According to reports, overseas investors hold about 29% of US corporate bonds, which is a critical source of demand. Amanda Lynam wrote in a report on Tuesday: “Notably, despite facing a series of resistance in recent years, including fluctuations in the strength of the US dollar and changes in hedging costs, overseas investors have continued to demand US credit assets.”

At the time Goldman Sachs released this report, investors were evaluating whether rising borrowing costs would put further pressure on the bond market before the Federal Reserve announced its policy decision on Wednesday. Benchmark 10-year US Treasury yields closed at 5% on Tuesday, once rising to their highest level since 2007, as investors increasingly expect interest rates to remain high for a longer period of time.

Notably, since the beginning of 2022, European investors have accounted for 52% of total net purchases of US corporate bonds from overseas, more than double the 21% share of Asian investors. Even so, recent market attention has been focused on Japan. Investors have been watching to see if Japanese institutions will return capital to Japanese assets as domestic bond yields rise and Japanese policymakers call for increased domestic investment. However, Amanda Lynam anticipates that Japanese investors will further reduce the size of their holdings of US investment-grade and high-yield bonds, which will be “manageable” compared to the wider market.

Despite rising US Treasury yields, changes in Japanese policy, and the market has been discussing overseas investors' demand for US assets for many years, Goldman Sachs said that it is still difficult to find alternatives to the size and depth of the US corporate bond market. Amanda Lynam said, “We still expect there will be a bottom support for purchases of US registered credit assets by overseas investors, and we believe that a wider return of capital outflows is unlikely to occur.”