Demand for Corporate Bonds Exceeds New Issues: Q3 2005

At least since 2003, the issuance of corporate bonds has been falling, while demand has increased, forcing buyers, on balance, to go into the secondary market to fill purchase orders for this type of fixed-income security.

(See Flow of Funds Table F212, Corporate and Foreign Bonds)

The graph shows that net purchases of corporate bonds has been on an uptrend over the last decade, with foreign buyers exerting increasingly pressure on the market.

Who Buys Corporate Bonds?
Who Buys Corporate Bonds?

Comparing this picture with the graph in the article, “Corporate Bond Issues Hold Steady: Q3 2005“, the disparity between supply and demand is evident.

Households Sell Corporate Bonds To Buy Agencies and Municipals

The graph shows that households have been the principal sellers of corporate bonds in the secondary market, closing the gap between supply and demand by selling bonds out of their portfolios.

Households sold into the secondary market, on balance, $60.1 billion in 2003, $117.8 billion in 2004, and (on an annual basis), $350.8 billion in Q3 2005.

Flow of Fund Table F100 shows that households have been lightening positions in corporate bonds, while significantly increasing holdings of agency securities and municipal bonds.

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