Investors pull bns out of US treasuries — and into corporate debt

Investors are reallocating USD bns from US Treasuries to US and European corporate debt, as government debt progressively looks relatively weaker, Bloomberg reported. However, the shift is happening slowly, as US Treasuries still hold a steadier performance than corporate bonds, even after the April tariff announcement which pulled both of their prices down. Foreign demand for Treasuries remained resilient, with holdings climbing in May.

By the numbers: Money managers cleared USD 3.9 bn from the US treasuries last month, while putting USD 10 bn into European and US investment-grade corporate debt, according to EPFR Global data. Meanwhile, investors poured another USD 13 bn into US high-grade corporates in July alone, the largest net client purchasing on record since 2015, according to a note from Barclays strategists.

The rationale: If the US fiscal deficits continue to expand as a result of tax cuts and growing interest costs, the government could end up borrowing more, making Treasuries riskier and company debt relatively safer.

A key catalyst for the sentiment shift is Moody’s Ratings, after it lowered the US government rating to Aa1 in May from AAA, citing the impact of growing deficit and rising interest. Interest payments will eat up some 30% of revenue by 2035, compared to 18% in 2024 and 9% in 2021, the agency noted that. The next decade could see US deficits increase by some USD 3.4 tn, on the heels of the Trump administration’s tax cuts, according to the Congressional Budget Office.

MEANWHILE- Corporates are posting robust performance despite warnings, with established companies having the ability to pay interest from yielding earnings. More US companies are exceeding analysts’ expectations compared to the same period last year. “What we’ve seen on the government fiscal side is not great news. Corporates seem to be chugging along nicely,” Jason Simpson, senior fixed income SPDR ETF strategist at State Street Investment Management, told Bloomberg.

Corporate bonds still possess some risks: The high demand for corporate bonds has driven their prices up and their yields down, a reason money managers tend to be cautious. Corporate bond spreads are currently too tight to make them attractive, according to Dominique Braeuninger, a multi-asset fund manager at Schroders Investment Management.

MARKETS THIS MORNING-

Asian markets are mixed this morning, as anticipation for news on a US-China trade agreement is at an all-time high with the August 12 deadline approaching. Hong Kong’s Hang Seng is up 0.9%, while Japan’s Nikkei is down 0.8%. Meanwhile, Wall Street futures are indicating a strong open following the trade agreement with the EU.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.1% yesterday on turnover of SAR 3.5 bn. The index is down 9.0% YTD.

In the green: Teco (+9.9%), Baan (+9.6%) and Raydan (+6.7%).

In the red: Buruj (-4.1%), Cenomi Retail (-3.0%) and Sadafco (-2.8%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.3% yesterday on turnover of SAR 31.5 mn. The index is down 14.3% YTD.

In the green: Adeer (+23.3%), Time (+9.1%) and Alashghal Almoysra (+9.0%).

In the red: Jana (-8.0%), Mufeed (-5.5%) and Ratio (-5.4%).

CORPORATE ACTIONS-

Artex Industrial Investment’s board greenlit a SAR 15.6 mn capital increase subscription for the Red Sea Cables, aiming at keeping a 27% ownership stake — equivalent of 864k shares — it said in a disclosure to Tadawul yesterday.

Adeer Real Estate’s board approved a SAR 25 mn dividend payout for 1H 2025 at SAR 5 per share, to be distributed on 21 August, it said in a disclosure to Tadawul yesterday.

The Saudi Investment Bank’s (Saib) board greenlit a SAR 498.9 mn dividend payout for 1H 2025 at SAR 0.4 apiece, it said in a filing to the exchange yesterday. The distribution date is set for 12 August.

Modern Mills for Food Products’s board approved a SAR 81 mn dividend payout for 1H 2025 at SAR 1 apiece, it said in a disclosure to Tadawul yesterday. Distribution is slated for 17 August.