What could billions of repatriated dollars mean for bonds? The list of US companies planning to move their offshore cash reserves back home is growing — as is speculation about what they will do with that money.

Two activities we expect to see less of are bond purchases and bond issuance, which could impact the US investment grade market in a variety of important ways.

What Could Repatriated Dollars Mean for Bonds?

December’s historic tax reform sharply reduced the US tax rate on foreign earnings (from 35% to 15.5% on liquid assets and 8% on illiquid assets), which could lead to as much as $1.5 trillion coming back onshore, according to Invesco Fixed Income estimates.

US companies currently hold around $3 trillion in unremitted foreign earnings, according to our analysis. While estimates vary widely,2 we believe around half is held in illiquid “operating assets” (such as plants, equipment and intellectual property) and the other half is held in high-quality, short-term assets (such as US Treasuries, corporate bonds and asset-backed securities).

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