US corporate bonds: Foreign funds sour on US corporate bonds as Trump sows chaos

Investors outside the US turned into net sellers of corporate debt in the first half of April, after US President Donald Trump announced the highest tariffs on foreign countries in more than a century. That’s according to data tracking direct flows compiled by Goldman Sachs Group Inc strategists including Lotfi Karoui.

The selling comes after overseas investors made record purchases of US corporate debt in 2024. Official data shows the demand slowing in February, according to Citigroup.

There are signs of foreign investors selling US assets broadly. Data showing flows into funds that take money from overseas and buy US stocks and bonds shows a sharp drop in purchases over the past two months, according to a note from George Saravelos, Deutsche Bank’s head of foreign exchange strategy, on Monday.

At least some foreign investors are guarded about jumping back into US credit after April’s roller-coaster ride.

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“We have to be a little more cautious” about US credit, said Kenichi Kuga, a senior general manager at Japan Post Insurance Co’s global credit investment department, which had about 4.2 trillion yen ($29 billion) of foreign debt holdings at the end of 2024. “The US credit market seems to have been slow to price in risks, compared with declines and volatility in equities.”It’s not yet clear that there’s a massive structural shift in foreign demand, but some investors believe that the US itself is probably going to take the biggest economic hit from Trump’s policy steps, Goldman Sachs’s Karoui said.In early April, Trump’s proposed tariffs hit security prices worldwide, including US corporate debt, Treasuries and stocks. Prices broadly recovered after the US president paused the proposed increases and talked about negotiating agreements with individual nations.

Around 30% of US corporate bonds are owned by foreign investors, according to economist Torsten Slok at Apollo Global Management Inc. If those buyers continue pulling back, and US money managers don’t step in to make up the difference, risk premiums on the debt will have to widen, said Hans Mikkelsen, a credit strategist at TD Securities.

“Some of the rhetoric out of Washington toward foreigners, and the fact that the US imposed massive tariffs on basically all countries – that alone can lead to a decision to maybe not put all your eggs in one basket,” Mikkelsen said.