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.

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