EU funds loaded up on US debt in 2019

European investment funds snapped up more US than eurozone debt in 2019.

Net purchases of US bonds hit €101.1 billion ($109.1 billion) last year, up +962% from €9.5 billion in 2018. In contrast, net purchases of eurozone bonds totalled €94.6 billion, up +65% on 2018.

US debt made up 22% of total EU fund debt holdings as of end-2019, a hair more than last year.

Over the course of 2019, funds bought a net €30.7 billion of eurozone bank debt, €1.5 billion of insurance and pension fund debt, €52.4 billion of other financial institution debt, and €39.7 billion of corporate debt.  

On the flip side, they were net sellers of €29.7 billion of eurozone sovereign bonds.

 

Funds also favoured the US over the eurozone when it came to equities in 2019. Net purchases of US stocks hit €42.9 billion, including €20.1 billion in Q4 alone. In contrast, eurozone equity purchases came in at just €6 billion.

 

What is it?

The ECB’s statistical warehouse publishes eurozone investment fund statistics. Key variables are available at a monthly frequency, while more details are provided quarterly. 

Asset data is divided into six categories: deposit and loan claims; debt securities; investment fund and money-market fund units; equities, non-financial assets and derivatives; and remaining assets. The last category includes interest accrued but not yet paid on loan claims, as well as financial derivatives.

Why it matters

Asset returns are plumper in the US than the eurozone right now, as despite a series of cuts by the Federal Reserve last year, interest rates are still higher in the former. US equities also soared in 2019. The S&P 500 gained +30%, outperforming the Euro Stoxx 50’s +27%. Small wonder EU funds are flocking to US securities.

An open question is whether the allure of US private debt is a function of its riskiness. Around 35% of outstanding US corporate debt is of the lowest investment-grade quality and could turn to junk in a recession. If a wave of credit downgrades turned these bonds into ‘fallen angels’, EU funds could be forced to sell, driving down prices and transmitting risk throughout the financial system.

Get in touch

Like Risk Quantum? Sign up for free to our daily newsletter and check @RiskQuantum for the latest updates.

If you have any thoughts on our latest analysis or want to suggest other ways to present and analyse the data, you can email us.

Tell me more

EU funds buy €89bn of overseas debt in Q3

‘Fallen angels’ pose little threat to EU funds

European investment fund growth slows

View all fund stories

  • LinkedIn  
  • Save this article
  • Print this page  

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: