American corporate bonds attracted foreign capital at a historic pace in January

Foreign investors increased their purchases of U.S. corporate bonds in January to levels not seen in nearly three years. Although the last week of the month saw a significant slowdown, the total net inflows for the entire month averaged $332 million per day, the highest since February 2023. As JPMorgan Chase analysts Nathaniel Rosenbaum and Silvi Mantri pointed out, this interesting phenomenon reflected a combination of stable yields and reduced hedging costs.

Record Net International Capital Inflows

The attractiveness of U.S. credit assets for foreign investors grew due to a combination of factors. The stable yield environment combined with lower hedging costs enhanced the appeal of bonds for cross-border portfolios. This situation allowed global players to achieve profitable positions with lower risk costs.

Diminishing Momentum Toward the End of the Period

At the end of January, investors took a pause. In the last seven days of the month, average daily net inflows dropped to $240 million, representing a 59% decrease compared to the previous week. However, this oscillation did not lay the groundwork for a long-term slowdown trend — January as a whole remained significantly positive in terms of foreign bond purchases.

Dollar, Volatility, and Future Capital Flows

Financial markets are currently focused on potential risks associated with the weakening of the U.S. dollar. Analysts warn that further dollar depreciation could trigger a massive outflow of foreign capital from U.S. assets. So far, foreign allocations to corporate bonds remain resilient to currency market volatility, suggesting that dollar movements have not yet triggered the expected capital exodus.