The biggest worry in the bond market hasn't materialized yet! Goldman Sachs: Rising U.S. Treasury yields won't stop overseas buyers from flooding into U.S. corporate bonds.

Investors have long worried that rising yields would drive overseas buyers out of the U.S. corporate bond market, but so far that hasn't happened. Despite the sharp rise in U.S. Treasury yields this year, Goldman Sachs says overseas demand for U.S. corporate bonds remains strong. According to analysis by Goldman Sachs chief credit strategist Amanda Lynam, overseas investors bought a net $251 billion of U.S. corporate bonds through the end of June, putting full-year 2026 net purchases on pace to approach last year's record $392 billion. Overseas investors hold roughly 29% of U.S. corporate bonds, making them a critical source of demand. "Notably, overseas demand for U.S. credit assets has persisted in recent years despite a series of headwinds, including fluctuations in dollar strength and changes in hedging costs," Amanda Lynam wrote in a Tuesday report. The Goldman Sachs report comes as investors assess whether rising borrowing costs will further pressure the bond market ahead of the Federal Reserve's policy decision on Wednesday. The benchmark 10-year U.S. Treasury yield closed at 5% on Tuesday, having earlier risen to its highest level since 2007, as investors increasingly expect rates to stay elevated for longer. Notably, since early 2022, European investors have accounted for 52% of total overseas net purchases of U.S. corporate bonds, more than double the 21% share from Asian investors. Even so, recent market attention has focused on Japan. Investors have been watching whether Japanese institutions will shift funds back to Japanese assets as domestic bond yields rise and Japanese policymakers call for increased domestic investment. However, Amanda Lynam expects further reductions by Japanese investors in U.S. investment-grade and high-yield bonds to be "manageable" relative to the broader market. Despite rising U.S. Treasury yields, a shift in Japanese policy, and years of market debate over overseas demand for U.S. assets, Goldman Sachs says the size and depth of the U.S. corporate bond market remain hard to replace. "We continue to expect a floor under overseas purchases of U.S.-registered credit assets and view a broader repatriation of flows as unlikely," Amanda Lynam said.