Foreign Buying of U.S. Corporate Bonds Drops

Foreign investors slowed their net purchases of U.S. corporate bonds by almost 24% in October from a year earlier as a rash of accounting scandals, a volatile stock market and disappointing returns on the bonds eroded demand.

Net foreign buying of U.S. corporate bonds totaled $10.4 billion in October, down from $13.6 billion a year earlier, the U.S. Treasury Department reported Monday.

“A lot of it has to do with corporate malfeasance,” said David Gilmore, a partner at FX Analytics in Stamford, Conn. “Some fairly high-level bankruptcies for U.S. firms also would feature into greater risk aversion among foreign investors.” A data firm reported Monday that U.S. corporate bankruptcies hit a record high this year, when measured by the assets of the filing companies.

October marked the second month of slumping overseas demand. Foreign investors bought just $3.7 billion of corporate debt in September, down 63% from a year earlier.

Although stocks rallied in the latter half of October, corporate bonds posted a loss of 1.3% that month, according to Merrill Lynch & Co.

Foreign investors were a mainstay for the corporate bond market last year, helping companies sell a record $818 billion of debt. International capital flows to corporate bonds and other U.S. assets have been a key support for the dollar, and some analysts have worried that the greenback could be vulnerable if foreign flows slump.

“It certainly takes some of the wind out of the sails for the U.S. dollar,” said T.J. Marta, a foreign exchange analyst for Citigroup.

According to data compiled by Citigroup, net foreign buying of all U.S. securities -- including Treasuries, corporate bonds, agency debt and stocks -- came to $397 billion through October, down from $430 billion in the year-earlier period. Foreign net purchases of corporate bonds fell 23% through October to $148 billion from $192 billion in the same period last year, according to Treasury data.