Foreigners sell Asian bonds for third month on US yield rise, Middle East tensions

Nov 17 – Foreign investors continued to retreat from Asian bonds for the third consecutive month in October, driven by a rise in US Treasury yields and heightened geopolitical tensions in the Middle East.

According to data from regional regulatory authorities and bond market associations, foreigners offloaded a net total of USD 761 million in bonds from Malaysia, Indonesia, South Korea, India, and Thailand. This outflow follows approximately USD 3.58 billion in net sales the previous month.

Indonesian bonds bore the brunt, with foreign net selling reaching USD 800 million, albeit a 47% decrease from the USD 1.5 billion in disposals seen a month earlier.

Malaysian and South Korean bonds also faced selloffs, with investors pulling out USD 538 million and USD 515 million, respectively.

Conversely, Indian bonds bucked the trend, attracting about USD 767 million from overseas investors, the seventh consecutive month of net inflows. Thai bonds also experienced a resurgence, receiving net cross-border inflows of USD 325 million after two months of consecutive outflows.

“The main driver was higher US bond yields which threatened to break above 5%, with a brief period of geopolitical risk aversion due to the Israel-Hamas war,” said Khoon Goh, head of Asia Research at ANZ.

US Treasury yields have, however, retreated this month, and hovered near two-month lows on Thursday after weekly jobless claims rose more than expected, helping cement expectations the Federal Reserve will not feel pressure to raise interest rates again to slow inflation.

“If US Treasury yields are capped, with US 10y appearing to face difficulty in sustaining a move above 5%, it would provide much-needed relief for EM Asia assets,” said Mitul Kotecha, an EM strategist at Barclays in a note.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Kim Coghill)