Just in Case. International Investors Shift to Safer Debt Instruments

According to the Financial Times, between $11 and $14 billion has been withdrawn from the U.S. high-yield bond market segment since the start of the year. The outflow has notably accelerated in recent weeks. Meanwhile, purchases of high-credit-rating debt securities have risen by nearly $19 billion.

Institutional investors—such as banks, pension and investment funds, insurance and brokerage firms—form the core of international investors. Early in the development of the global debt market, strict limits were imposed on their purchases of high-risk debt securities, but these restrictions gradually eased, allowing more funds to flow into high-risk, high-return bonds.

When early signs of a financial-economic crisis emerge, investors swiftly offload "toxic" debt obligations, preferring to park funds in the safest assets as a precaution. Sovereign bonds top this category, including US Treasuries (U.S.), Gilts (UK), Bunds (Germany), OAT (France), and others.

In the current environment, not only developed nations but also stable emerging markets with solid economic growth stand to benefit. Uzbekistan's sovereign bond issuance in early April this year serves as an example: three-year notes were placed at an annual rate of 12.25%, significantly lower than similar issuances in 2024-2025.

To avoid currency risk, the bonds were denominated in Uzbek som, the national currency. Even so, demand from international investors nearly quadrupled the initial offer. This resulted in $1 billion equivalent raised, with the interest rate slightly reduced.

Shifts in the global debt market stem primarily from growing concerns over slowing economic growth and rising inflation. Consequently, investors are abandoning long-term high-yield, high-risk strategies in favor of "safe havens."

Yet, as global practice shows, once financial-economic stability returns, profit-seeking investors will again chase the highest returns, including low-rated bonds. Here, it's fitting to rephrase a familiar saying: "It pricks, but we crave it anyway."

Author: Dr. of Economic Sciences, Professor at the Department of World Economy and International Finance, Financial University under the Government of the Russian Federation Igor Alekseevich Balyuk.