Asian bonds see foreign inflows for fifth straight month in July

Aug 24 – Asian bonds recorded net foreign inflows for a fifth straight month in July, helped by expectations that the US Federal Reserve’s monetary tightening cycle is nearing the end as price pressures show signs of easing.

Foreigners were net buyers of bonds worth USD 4.5 billion in Malaysia, Indonesia, South Korea, India, and Thailand, compared with about USD 4.2 billion worth of purchases in June, data from regulatory authorities and bond market associations showed.

“Easing inflationary pressures and expectations that Asian central banks are now on hold were supportive of bond inflows into the region,” said Khoon Goh, head of Asia research at ANZ.

Malaysian bonds received about USD 2.5 billion worth of foreign capital during the month, the biggest amount since June 2020.

Indonesian bonds gained USD 600 million, while Thai, South Korean, and Indian bonds also secured about USD 500 million each last month.

However, US bond yields have risen this month after a steady stream of stronger-than-expected economic data, and minutes from the Federal Reserve’s July rate-setting meeting showed officials are still focusing on containing inflation.

Chris Wong, investor director, Asia fixed income at Schroders, said he was still optimistic about Asian local currency bonds doing better in the second half of 2023, as central banks in Asia who have hiked interest rates earlier are likely to ease ahead of the Fed.

“That should be a tailwind to Asian local rates relative to the US and potentially generate capital appreciation that (US dollar) cash cannot offer,” he said.

“Asian currencies will likely be on a better footing given their attractive valuations, resilient growth, as well as stabilization of interest rate differentials against the developed markets.”

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Rashmi Aich)