Asian bonds see thin inflows as US interest rate hike bets are weighed

Asian bonds see thin inflows as US interest rate hike bets are weighed

By Gaurav Dogra

(Reuters) – Foreigners were net buyers of Asian bonds emerging outside of China for the second month in a row in August, despite the purchase being measured based on fears of rising inflation and expectations of a more aggressive stance from the US Federal Reserve.

Foreign investors last month bought $1.05 billion worth of bonds in Indonesia, Thailand, Malaysia, South Korea and India, according to data from regulatory associations and the bond market.

Foreigners bought $618 million in regional bonds in July, after dumping a total of $15.45 billion between March and June.

“The sustainability of inflows will be challenged by increasing external headwinds,” Khun Goh, head of Asia research at ANZ, said in a report last week.

“The US Federal Reserve is ready to continue to tighten monetary policy aggressively, leading to higher US and US dollar yields, which tend to be negative for flows to Asia.”

On Monday, hitting its highest level in more than a decade, the dollar was boosted by rising expectations that the Federal Reserve will raise interest rates dramatically this week to tackle inflation.

Malaysian bonds attracted $1.25 billion with foreign inflows last month, the highest level since December, while Indonesian bonds pulled in about $600 million.

Indian bonds also received $483 million on reports that JPMorgan is in talks with investors about a possible inclusion in its emerging market index.

Meanwhile, South Korean bonds faced $1.38 billion in outflows, the largest monthly drawdown by foreigners since December 2019, amid fears of slowing semiconductor exports.

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a Barclays The report (LON 🙂 said that foreign holdings as a percentage of total government bonds outstanding declined across Asia in August, with the exception of Malaysia and India.

The brokerage said long-term structural provisions should partially offset non-resident demand that remains defensive for Asian bonds, “but the risks are for larger outflows if global rates rise further.”

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