Weekly Market Summary

Extra Credit^*

• The Federal Reserve’s flow-of-funds data show foreign investors, mutual funds, and banks stepped up in the first quarter of this year, while household demand turned negative. Through 1Q24, foreign investors were the largest buyer of U.S. fixed income, scooping up nearly $1 trillion, of which a little more than $500 billion was in U.S. Treasuries.
• The foreign sector was the single largest source of demand as it overtook the household sector from the prior quarter. Foreign demand has risen steadily in recent quarters to $319 billion in 1Q24 vs. $216 billion in 4Q23.
• Overseas investors, mutual funds, and pension funds/insurance companies were net buyers, accounting for most of the demand (excluding the Fed), and around half of their purchases were in U.S. Treasuries. Demand from mutual funds picked up, with funds purchasing about $445 billion and with corporate bonds and agencies posting the biggest increase, while Treasuries purchases held steady at around $100 billion.
• Before accounting for the Fed, net supply of fixed-income securities (excluding Treasury bills) fell from about $2.9 trillion to $1.9 trillion through 1Q24. The decline was driven by a drop in net issuance of agencies, which fell about $1 trillion, reflecting swings in home-loan issuance related to advances to the banking sector.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month both at 1.25%, respectively. This was compared to 1.32% and 1.55% from April, as the high yield default rate were 30 basis points lower and the loan default rate now sit at a 16-month low. The long-term historical default rate for loans and high yield bonds was 3.0% and 3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 6/10/24.