Q1 2006
By John Schroy, on June 20th, 2006 | 
In Q1 2006, the excess of US imports over exports continued to provide dollars to the rest of the world, which were invested in the US bond market.
Although foreign central banks reduced flows into US treasuries and agencies after the high point of 2004, the shortfall has been more than covered by flows into bonds from foreign private sources. The driving force behind foreign purchases of US bonds is not so much related to interest rates as to worldwide neo-mercantilist impulses to favor exporters.
Q1 2006
By John Schroy, on June 20th, 2006 | 
Despite worries about rising interest rates engineered by the Federal Reserve Bank, demand for corporate and foreign bonds in the US market continued firm through Q1 2006.
The principal bond buyers were foreign investors, life insurance companies, and money market funds.
Even with firm demand, corporate bond prices weakened in Q1 2006 because a significant increases in new offerings by corporations seeking to finance stock buybacks.
Q1 2006 Stock Buybacks
By John Schroy, on June 20th, 2006 | 
Massive issuance of bonds by non-financial corporations, largely to finance an extraordinary level of stock buybacks, helped force bond interest rates upwards in Q1 2006. For years, the principal issuers of corporate bonds into the US market have been the financial sectors — mainly issuers of asset-backed securities raising funds for mortgages and consumer finance.
The annualized rate of bond issuance by non-financial corporate business rose to $240.4 billion in Q1 2006, four times the issuance rate of 2005.
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