For those wondering what has been keeping risk premiums for on U.S. corporate debt at their historic lows, recent data from the government confirms that foreign demand has been a big factor.
According to the Treasury Department's recent tally of foreign purchases of U.S. securities, overseas investors bought a record $63.9 billion of corporate debt in November, a 60 percent increase over the previous month and above the $57 billion of new bonds sold that month.
Private investors made up the bulk of the buyers. Net foreign purchases of U.S. corporate bonds by this group grew to $60.1 billion in November, up from $37.5 billion in October and also above the $56.9 billion September figure.
"That's a pretty big jump," said Kevin Murphy, who oversees investment-grade corporate debt at Putnam Investments. He reckons the extra yield in corporate debt over safer-haven securities like Treasurys encouraged private investors like large banks and insurance companies to snap up company bonds.
Additionally, "we had a very big month for new issuance, that may have encouraged them to buy more," Murphy said, pointing to the roughly $57 billion in gross supply that hit the investment-grade corporate bond market alone.
One of the largest deals sold in November was a $5 billion debt offering from Time Warner Inc.
Gross issuance of high-yield bonds was about $25.4 billion in November, according to data provider Dealogic, and included such massive deals as the $5.95 billion bond offering of Freescale Semiconductor Inc. to fund its leveraged buyout and the $5.7 billion offering of HCA Inc. also to fund its LBO.
But taking into account debt that matured, there was only $29.5 billion in net issuance in the investment-grade market, less than half of net purchases in both investment-grade and speculative-grade categories.
"They must be buying into the secondary market" where bonds trade, Murphy reckoned. This contributed to the tight risk premiums on corporate bonds, he added.
U.S. corporate bonds is the category where net foreign purchases increased the most in November. Other categories include U.S. Treasury bonds and U.S. agencies notes. U.S. stocks was the only category that saw a drop in foreign net purchases.
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