Demand for bonds still strong

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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.

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.

The graph shows the principal bond buyers as being foreign investors (red bars), life insurance companies (green bars), and money market funds (dark blue bars).

Generally, commercial banks (purple bars) were also net buyers of these instruments.

Principal Corporate & Foreign Bond Buyers: Q1 2006

Domestic households (individual investors), spooked by Federal Reserve low rates since 2003, only returned to the market as buyers in Q4 2005.

The graph illustrates the role of foreign investors in supporting demand in this market.

This data is taken from Federal Reserve Flow of Funds Table F212 (Corporate and Foreign Bonds).