The bond market is the financial market where companies and governments raise funds. The share of bond stock held by non-residents can be used to measure:
1- The attractiveness of bonds issued by governments or companies. In particular, 54% of US bond holdings are held by non-residents. This is due to strong demand for US government debt securities, which is justified by (1) the risk-free nature of the US economy (stable dollar) and (2) high Chinese savings in recent years.
2- The risk of large capital outflows in the event of an economic or financial crisis in a given country. A large proportion of the bond stock held by non-residents can increase financial volatility (« sudden stops, » « sudden starts »).
3- Financial openness. The extremely low proportion of bonds held by non-residents in China (2%) can be explained by the relative closure of Chinese financial markets to non-residents and, above all, the abundance of domestic savings, which makes it possible to satisfy the Chinese government’s bond issues.
Co-written by Thomas Lorans
