The Americas: Foreign Funds Continue to Flow into US Market

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Corporate bond markets around the world are growing rapidly, but it will be a number of years before they gain the depth and maturity of the US credit market.

"The corporate bond market in Europe is in its infancy, and Asian markets are relatively small," says Karim M. Basta, senior global debt strategist at Merrill Lynch.The US corporate bond market totaled $4.1 trillion at the end of 1999, while Euroland corporates were about half that amount, at $2.1 trillion, and Japan's corporate bonds totaled

$ 1. 1 trillion, he says. The distribution of holdings of the world's major fixed-income markets is becoming increasingly globalized, Basta adds. Among the seven major industrialized countries, only the Japanese and Canadian government bond markets experienced a decrease in the share of nonresident holdings over the past decade.

In a stable global economic environment, capital flows will tend to be drawn to those markets offering the greatest breadth of financial products, liquidity, and return, Basta says. According to him, "the freeing up of capital with the removal of restraints on foreign ownership by pension funds in Europe and Canada should help the US capital markets, just based on their maturity and size. …