Yields mixed as PCE eases fears but oil keeps markets cautious

NEW YORK – US Treasury yields were mixed on Friday after data showed the Federal Reserve’s preferred inflation measure was in line with economists’ expectations in January, while concerns over oil prices kept investors nervous about an uptick in price pressures.

The Personal Consumption Expenditures price index increased 0.3% in January after rising 0.4% in December. Excluding the volatile food and energy components, the PCE price index rose 0.4% after a similar gain in December.

“The January core PCE wasn’t quite as bad as feared,” said Matt Bush, US economist at Guggenheim Investments.

The two-year note yield, which typically moves in step with Fed interest-rate expectations, fell three basis points to 3.732%. The yield on benchmark US 10-year notes rose one basis point to 4.283%.

The yield curve between two- and 10-year notes steepened by around three basis points to 55 basis points.

Traders this week have pushed back expectations on when the US Fed will cut rates as oil prices jump on supply disruptions caused by the US-Israeli war on Iran.

Crude futures climbed on Friday as the Strait of Hormuz remained closed, but analysts were wary the weekend might bring surprise changes in the status of the war two weeks after it started.

Traders are pricing in 22 basis points of cuts by year-end, down from more than 50 basis points before the war broke out, indicating rising doubts the Fed will make a second 25-basis-point cut by end-2026.

Some analysts and economists view the pricing as potentially having gone too far.

“You would need to see a very large rise in energy sustained for several months to really have a meaningful impact on core inflation,” said Bush, adding, “The second component here is that an energy shock also is negative for economic growth in the labor market.”

“The labor market has already been in a fragile spot. So it’s not clear-cut to me that higher oil prices would necessarily lead to a tighter path for Fed policy, given both sides of their dual mandate are going to be affected,” Bush said.

Concerns over the recent surge in oil prices have largely overshadowed an unexpectedly weak
jobs report for February.

“Front-end USD rates are likely to continue to trade with energy prices over the near term, however a protracted conflict can shift the focus from inflation to growth,” Wells Fargo macro strategists said on Friday in a report.

Other data on Friday showed that US economic growth slowed more sharply in the fourth quarter than initially thought, while US job openings increased in January, though hiring was lackluster.

The Fed is expected to keep interest rates unchanged at the conclusion of its two-day meeting on Wednesday.

Traders will focus on comments from Chair Jerome Powell for clues on how higher oil will impact Fed policy going forward. Policymakers will also update their interest rate and economic forecasts.

However, “The Fed has a relatively high bar to out-hawk market expectations,” Wells Fargo said.

(Reporting by Karen Brettell; Editing by Pooja Desai and Sharon Singleton)

Gold slips and heads for second consecutive weekly fall

Gold prices slipped on Friday and were on track for a second consecutive weekly decline, pressured by a stronger dollar and inflation worries driven by the Iran war, which weighed on rate‑cut expectations.

Spot gold fell 0.5% to USD 5,052.15 per ounce, by 1:44 p.m. ET (1744 GMT), and was down over 2% for the week so far.

US gold futures for April delivery settled 1.3% lower at USD 5,061.70.

“While the market remains strongly bullish gold long term on asset allocation drivers, bullion is grinding towards lows since the Iran conflict started with the dollar at nearly four-month highs,” said Tai Wong, an independent metals trader.

The US dollar was on course for a weekly rise, making greenback-priced bullion less affordable for other currency holders.

Commerzbank in a note said expectations of a more restrictive monetary policy are the main reason why the price of gold has come under pressure.

While gold is prized as a traditional hedge against inflation and periods of uncertainty, elevated rates typically curb its appeal by increasing the cost of holding bullion.

Data showed US consumer spending increased slightly more than expected in January, which together with continued strength in underlying inflation and the war in the Middle East bolstered economists’ views that the Federal Reserve would not resume cutting interest rates for some time.

President Donald Trump said the US was going to be hitting Iran “very hard over the next week”, shortly after issuing a partial 30-day waiver for purchases of sanctioned Russian oil.

Oil prices dipped but were on track for weekly gains as Gulf disruptions due to the conflict broadly persisted.

Elsewhere, resumption of some flights from Dubai has allowed gold flows from this major global trading hub to restart partially this week, three sources told Reuters.

Among other metals, spot silver lost 3.3% to USD 81.00.

Platinum fell 4% to USD 2,047.20 and palladium shed 2.5% to USD 1,569.00. The sister metals are on track to post weekly losses.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri and Alan Barona)

Investors await Fed rate outlook as Iran war keeps markets on edge

NEW YORK – Investors will seek clarity in the coming week on how much the Middle East conflict is complicating expectations for interest-rate cuts this year, as they brace for developments in the Iran war that could rattle markets.

US Federal Reserve policymakers meet for the first time since the US and Israel began air strikes on Iran about two weeks ago, setting off a surge in oil prices that has reverberated across assets.

Fed members will grapple in their two-day meeting with questions about the energy shock’s impact on inflation and economic growth. The central bank will release economic projections on Wednesday. Markets are now pricing in tempered hopes for rate cuts in the wake of the conflict, even as expected cuts have been a key source of optimism for bullish stock investors this year.

“The Fed is going to be front and center, especially given the fact that we have seen the market push back… these rate cut expectations,” said Angelo Kourkafas, senior global investment strategist at Edward Jones.

US stock indexes have fallen and equity volatility has ratcheted higher since the Iran war began. Investors are fixated on the massive moves in oil prices, with US crude soaring close to USD 120 a barrel to start the week, and settling on Friday near the closely watched USD 100 level. Iran said the world should be ready for oil at USD 200 as its forces hit merchant ships during the week.

The benchmark S&P 500 ended on Friday, down about 5% from its record closing high from late January, as it posted its third straight weekly decline.

“We’re seeing wild swings in the market as traders are latching on to any hint of developments, positive or negative, on the Iran conflict,” said Sid Vaidya, chief investment strategist at TD Wealth.

FED ON HOLD FOR LONGER?

The Fed is widely expected to hold interest rates steady for a second straight meeting when it gives its policy statement on Wednesday. The central bank lowered rates last year to shore up a weakening labor market, but paused its easing cycle in January as it noted risks to employment and inflation had diminished.

Investors have been assuming more rate cuts are coming this year, which would be expected to support prices for stocks and other assets. Those expectations have been dialed back due to fears that the surge in energy prices will push up inflation.

“We believe this will just keep the Fed in a holding pattern for longer,” Vaidya said.

At the same time, a surprisingly weak jobs report for February could encourage the Fed to maintain a bias toward easing.

Fed funds futures on Friday were pricing in slightly less than one standard quarter-percentage point cut by December, down from two such cuts as of late February before the war began, according to LSEG data.

FED PROJECTIONS, POWELL COMMENTS IN FOCUS

As part of its meeting, the Fed will release updated projections from policymakers on their future expectations for rates, as well as for inflation and the labor market. Fed Chair Jerome Powell’s press conference on Wednesday, following the central bank’s policy statement, also could shed light on how Fed members are viewing the impact of the conflict.

“I think it’s going to set the table for the year and how to look at inflation being induced by oil prices,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest Wealth Management.

For Powell, it will be his second-to-last meeting before his term as chair expires in May. The next rate move may not come until President Donald Trump’s nominee for Fed chair, former Fed Governor Kevin Warsh, is expected to have taken over the helm of the central bank.

In the coming week, Nvidia’s annual developer conference also could bring renewed focus to the artificial-intelligence trade, which sparked volatility for technology and other shares earlier in the year.

But investors expect Iran-related news will remain prominent.

“Headlines continue to drive market movements as investors wait for greater clarity on the timing of a US exit strategy,” Adam Turnquist, chief technical strategist for LPL Financial, said in a written commentary on Thursday.

(Reporting by Lewis Krauskopf; Editing by David Gregorio)

Crude futures turn positive on continued Hormuz closure

HOUSTON – Crude futures climbed higher on Friday as the Strait of Hormuz remained closed, but analysts were wary the weekend might bring surprise changes in the status of the war two weeks after it started.

Brent futures for May settled at USD 103.14 a barrel, up USD 2.68, or 2.67%. US West Texas Intermediate (WTI) crude for April finished at USD 98.71 a barrel, up USD 2.98, or 3.11%.

Prices were down early on Friday on an erroneous report that an Indian-flagged tanker had sailed through the Strait of Hormuz, which has been shut since the war began.

Once it became clear the tanker sailed from Oman and had not passed through the strait prices began rising, turning positive before midday.

Brent rose 11.27% from its finish on March 6 while WTI gained 8% from its value a week ago.

As part of efforts to lower fuel prices to consumers in an election year, the US issued a 30-day license for countries to buy Russian oil and petroleum products stranded at sea. Treasury Secretary Scott Bessent said it was a step to stabilise global energy markets roiled by the US-Israeli war on Iran.

This will affect 100 million barrels of Russian crude, equal to almost a day’s worth of global output, according to Russia’s presidential envoy Kirill Dmitriev.

“Russian oil was already going to buyers; this is not bringing additional barrels to the market but it does reduce some friction,” said Bjarne Schieldrop, chief commodities analyst at SEB.

“The market is starting to get very concerned that this (war) is going to last longer. The big fear is that we have severe damage to oil infrastructure, which would be a lasting loss of supply.”

OIL TO BE RELEASED FROM STOCKPILES

The announcement on Russian oil came a day after the US Energy Department said Washington would release 172 million barrels of oil from its Strategic Petroleum Reserve to help curb skyrocketing oil prices.

That plan was coordinated with the International Energy Agency, which has agreed to release a record 400 million barrels of oil from strategic stockpiles, including the US contribution.

Fleeting relief sparked by the IEA release, however, was shattered by a re-escalation of Middle East risks, IG analyst Tony Sycamore said in a note.

Iran’s new Supreme Leader Ayatollah Mojtaba Khamenei said Iran would fight on, and keep the Strait of Hormuz shut as leverage against the United States and Israel.

Two fuel tankers in Iraqi waters were struck by explosives-laden Iranian boats, Iraqi security officials said on Thursday. An Iraqi official told state media the country’s oil ports have completely stopped operations.

US President Donald Trump said on Thursday the United States stood to make significant money from oil prices, driven higher by the war with Iran. But stopping Iran from getting nuclear weapons was far more important, he said.

Both benchmark prices surged more than 9% on Thursday and hit their highest levels since August 2022.

Goldman Sachs predicted on Friday that Brent oil would average more than USD 100 a barrel ‌in March and USD 85 in April, as energy prices remain volatile due to the Iran war, damage to Middle East energy infrastructure and disruptions in the Strait of Hormuz.

Brent is better supported than WTI because Europe is more susceptible to energy security issues, while the US is able to stave off its exposure due to its domestic output, said Emril Jamil, senior analyst at LSEG.

In another sign the disruptions may drag on, sources told Reuters that Iran had deployed about a dozen mines in the strait, a move that is likely to complicate the reopening of the critical waterway.

(Reporting by Erwin Seba in Houaton, Anna Hirtenstein in London, Jeslyn Lerh in Singapore, Sam Li and Lewis Jackson in Beijing; Editing by Pooja Desai, Susan Fenton, Aidan Lewis, and Diane Craft)

Shares skid, oil surges again as Iran attacks Gulf shipping

SYDNEY – Shares fell in Asia on Thursday as oil prices jumped on reports that more ships had been struck in the Strait of Hormuz and in Iraqi waters, fuelling inflation and pushing borrowing costs higher worldwide.

US crude rose 7.5% to USD 93.80 a barrel, extending a rise of more than 4% overnight. Brent crude futures jumped 7.7% to USD 99.03 a barrel.

That was despite plans from the International Energy Agency to release 400 million barrels of oil from its reserves, the largest such move in its history. The US said it would release 172 million barrels of oil from next week, as part of the IEA plan.

Two fuel tankers in Iraqi waters had been struck by explosive-laden Iranian boats, Iraqi security officials said early on Thursday, while an Iraqi official told state media that oil ports “have completely stopped operations.”

“Multiple tankers loaded with Iraqi crude are now reported burning in the Persian Gulf off the coast of Basra, engulfed in flames and leaking burning oil into the water,” said Tony Sycamore, analyst at IG.

“This appears to mark a direct and forceful Iranian response to the IEA’s overnight announcement of a massive strategic reserve release aimed at cooling runaway prices.”

Iran had earlier stepped up attacks on merchant ships in the Strait of Hormuz, telling the world to get ready for oil at USD 200 a barrel. On Wednesday, three vessels were reported to have been hit in Gulf waters as Iran’s Revolutionary Guards said their forces had fired on ships in the Gulf that had disobeyed their orders.

US President Donald Trump on Wednesday declared the war on Iran has been won but he will stay in the fight to finish the job, throwing more uncertainty in the mix.

All of this was bad for shares. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8%, while the Nikkei dropped 1.6% as Japan is a major importer of oil and gas.

Both S&P 500 futures and Nasdaq futures fell 0.8%. Over in Europe, EUROSTOXX 50 futures fell 0.6% and DAX futures slid 0.8%.

INFLATION RISKS

US data showed the consumer price index rose 0.3% in February, in line with forecasts and above January’s 0.2% increase, but it was rendered obsolete given the Iran war has fuelled inflation.

In bond markets, the risk of rising inflation outweighed safe-haven considerations to shove yields higher globally. Yields on 10-year Treasury notes rose 4 basis points to 4.2472% on Thursday, having jumped 6 bps overnight.

Fed funds futures extended their slide as investors feared higher inflation would make it harder for the Federal Reserve to ease policy. Markets are just wagering one more rate cut from the Fed this year.

The danger of energy-driven inflation has led markets to wager the next move in rates from the European Central Bank could be up, possibly as early as June.

Nervous investors sought the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.

The euro slipped 0.3% to USD 1.1536, after closing at the weakest level since November last year. The dollar inched up 0.1% to 159.12 yen, the strongest level since January when reported rate checks from the US Fed spooked yen bears.

The risk sensitive Australian dollar lost 0.4% to USD 0.7127, having hit a more than three-year high of USD 0.7188 on Wednesday as bets for an imminent rate hike from its central bank grew.

(Reporting by Stella Qiu; Editing by Lincoln Feast)

Yields gain as oil rally dims hopes for Fed rate cuts

NEW YORK – Two-year yields hit a five-month high on Wednesday as higher oil prices stoked inflation fears and pushed back expectations for Federal Reserve rate cuts, with traders largely looking past February consumer price inflation data that was in line with economists’ expectations.

US consumer prices picked up last month as the cost of gasoline increased in anticipation of an escalating war in the Middle East. The Consumer Price Index rose 0.3% last month after gaining 0.2% in January. Excluding the volatile food and energy components, the CPI gained 0.2% after rising 0.3% in January.

“The thing about this number, however, is that it’s very much in the rear-view mirror because it’s a February number and there’s stuff going on at the moment, which puts upward pressure on prices going forward, clearly given the war in Iran,” said Padhraic Garvey, regional head of research Americas and head of global rates and debt strategy at ING.

The International Energy Agency on Wednesday agreed to release 400 million barrels of oil, the largest such move in its history, to try to rein in crude prices that have soared due to supply shocks from the US-Israeli war with Iran.

Traders have pushed back expectations of the next Fed rate cut to September on concerns that the war will last longer than hoped. If it continues, higher oil prices are also likely to dent economic growth and send yields lower.

“It’s probably going to hurt the economy,” said Garvey. However, right now, “the market is saying we’re going to have an inflation issue, but this is not necessarily a big hit to activity.”

Fed funds futures traders are pricing in 32 basis points in cuts by year-end, down from 41 basis points on Tuesday, indicating rising doubts that the Fed will make two 25-basis-point cuts this year.

Economists at Morgan Stanley expect two Fed rate cuts this year, but note that this assumption “rests on the Fed ‘looking through’ oil price shocks to headline inflation.”

Risks to the outlook include the possibility that firmer inflation and low unemployment lead the Fed to push back cuts, but that it then still cuts to the same level, the economists said.

Alternatively, the Fed could remain on hold for longer if demand erodes more than expected. “In this case, the Fed not only cuts later, but it cuts by more to a lower trough,” Morgan Stanley said.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 6.3 basis points at 3.632%. It earlier reached 3.648%, the highest since September 26.

The yield on benchmark US 10-year notes rose 7 basis points to 4.206% and earlier got to 4.226%, the highest since February 9.

The yield curve between two- and 10-year notes steepened by one basis point to 57 basis points.

Benchmark US Treasury yields will drift only slightly higher over the coming months despite potential inflationary pressures sparked by the war in Iran, according to a Reuters poll of bond strategists who have barely changed their forecasts from last month.

There was soft demand for the Treasury’s USD 39 billion sale of 10-year notes, the second sale of USD 119 billion in coupon-bearing supply this week.

The notes sold at a high yield of 4.217%, around half a basis point above where they traded before the auction. Demand was 2.45 times the amount of debt on offer, up from 2.39 times in February, which was the weakest since August.

Interest was weak for the government’s USD 58 billion sale of three-year notes on Tuesday. It will also sell USD 22 billion in 30-year bonds on Thursday.

(Reporting by Karen Brettell in New York; Editing by Andrei Khalip and Matthew Lewis)

Gold eases as firmer dollar, lingering inflation concerns persist

Gold prices edged lower on Wednesday, weighed down by an uptick in the US dollar and looming inflation concerns that bolstered expectations of higher interest rates.

Spot gold was down 0.5% at USD 5,165.93 per ounce, as of 12:00 p.m. ET (1600 GMT). US gold futures for April delivery fell 1.3% to USD 5,174.40.

The US dollar index inched up 0.5%. A stronger US currency makes dollar-priced commodities more expensive for holders of other currencies.

“The gold market seems to be in a push-and-pull between safe-haven demand driven by the war and concerns over higher-for-longer interest rates,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.

Gold is widely seen as a hedge against uncertainty and inflation, but it becomes less attractive when interest rates are high since it is non-yielding.

Oil prices gained nearly 4% as fresh attacks on ships in the Strait of Hormuz worsened supply disruption fears, and analysts said the International Energy Agency’s proposal to release oil reserves was inadequate to ease those fears.

Iran said the world should be prepared for oil to hit USD 200 a barrel as it fired at Israel and other targets across the Middle East.

Meanwhile, data showed the US consumer price index rose 0.3% in February, in line with forecasts and above January’s 0.2% increase. CPI rose 2.4% in the year to February, also matching expectations.

Analysts at Standard Chartered noted it is not unusual for gold to experience downside pressure for several weeks amid a need for cash.

“We maintain our positive longer-term view and expect gold to resume its uptrend beyond near-term profit-taking,” they added.

Among other metals, spot silver fell 4.1% to USD 84.82 per ounce, spot platinum lost 1.1% to USD 2,175.60, and palladium slipped 1.5% to USD 1,630.84.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri and Diti Pujara)

Dollar holds modest gains as Middle East conflict uncertainty persists

NEW YORK – The dollar clung to modest gains against major currencies on Tuesday, as investors’ appetite for riskier assets remained subdued amid evolving developments in the
Middle East conflict.

The dollar, which surged in recent sessions after US-Israeli strikes on Iran sent oil prices soaring, gave up some of those gains after President Donald Trump suggested on Monday the conflict could end sooner than expected.

Trump said the war could end well before the timeline he initially laid out, but threatened to escalate attacks should Tehran block oil shipments from the Strait of Hormuz.

Trump’s comments helped ease concerns, reducing buying pressure on the dollar and sending oil prices down about 15% on Tuesday, a day after they soared to their highest levels since 2022.

“I think this is largely a reflection of the FX complex reacting to the easing in energy prices, which, if prolonged, could lessen the inflationary implications of the current commodity shock, thus lessening some degree of pressure in terms of heavy energy-importer economies,” Michael Brown, senior research strategist at Pepperstone in London, said.

The euro was 0.1% lower on the day at USD 1.16252 after sinking to a more than three-month low of USD 1.1505 in the prior session. The dollar was 0.1% up against the yen at 157.86.

Some strategists warned optimism about a quick resolution may be premature.

“We’re still in a market where almost everything is still tightly correlated to developments in the crude complex, and where participants retain a laser-like focus on incoming geopolitical headlines,” Pepperstone’s Brown said.

Iran’s Revolutionary Guards dismissed Trump’s remarks as “nonsense” and said the blockade would continue until attacks from the US and Israel end.

Meanwhile, G7 energy ministers stopped short of agreeing on a release of strategic oil reserves on Tuesday and instead asked the International Energy Agency to assess the situation before acting.

The pound was 0.1% lower against the dollar at USD 1.34265.

The pound has been pressured by subdued economic data and domestic political turbulence in recent weeks.

With investors’ appetite for riskier assets creeping back, the Australian dollar rose 0.8% while the US currency slipped 0.3% against the Mexican peso.

The Canadian dollar rose about 0.1% to USD 1.3575 on Tuesday, and the yield on benchmark government debt climbed, as the firming risk appetite helped make up for falling crude prices.

“The CAD has appreciated 2% since November, largely a reflection of rising crude oil prices. Despite persistent risks from US tariffs, stronger oil prices should bolster the loonie,” strategists at global macro research and advisory firm Numera Analytics said in a note.

“Our forecast points to appreciation from 1.37 to 1.33 per USD over the next 12 months,” they wrote.

On Tuesday, leading cryptocurrency bitcoin rose 2% to USD 70,382 but remained close to the multi-year low touched in early February.

(Reporting by Niket Nishant and Jiaxing Li; Writing by Jiaxing Li and Tom Westbrook; Editing by Thomas Derpinghaus, Edwina Gibbs, William Maclean, and Andrea Ricci )

Gold gains nearly 2% on softer dollar, cooling inflation concerns

Gold rose nearly 2% on Tuesday, buoyed by a softer dollar and easing inflation concerns as oil prices pulled back amid indications the conflict in the Middle East could end soon.

Spot gold was up 1.9% at USD 5,231.79 per ounce as of 1:31 p.m. ET (1731 GMT). US gold futures for April delivery settled 2.7% higher at USD 5242.10.

The dollar index slipped, supporting gold prices as a weaker dollar makes greenback-priced bullion more affordable for other currency holders.

Oil prices plummeted on Tuesday after soaring to a more than three-year high in the previous session as US President Donald Trump predicted the war in the Middle East could end soon, easing concerns about prolonged disruptions to oil supplies.

On the ground, however, there were no signs of the war easing, with Tehran residents reached by Reuters describing US-Israeli bombardment of the capital overnight as the fiercest of the conflict.

“With oil prices easing from peaks above USD 100 – still inflationary and therefore supportive for gold, but no longer high enough to seriously limit the Fed’s ability to cut rates – investors are gaining comfort that the debasement trade may be re-energizing as we move on,” said Bart Melek, global head of commodity strategy at TD Securities.

Despite being viewed as an inflation hedge, gold loses some appeal when interest rates rise, as it offers no yield.

Investors also await US consumer price index data and Personal Consumption Expenditures (PCE) data due later this week. The Federal Reserve is expected to hold rates steady at its upcoming March 17-18 meeting.

Meanwhile, gold in Dubai is trading at a discount to London as flight constraints caused by the conflict keep more bullion in the local market, while demand remains subdued.

Spot silver rose 2.7% to USD 89.39. Spot platinum gained 2.2% at USD 2,229.15, while palladium fell 0.9% to USD 1,675.50.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Jonathan Ananda and Krishna Chandra Eluri)

Portfolio flows to emerging markets slow to USD 22 billion in February, says IIF

NEW YORK – Foreign investors sharply slowed their purchases of emerging market assets in February to below USD 22 billion even as flows remained positive across both debt and equities, data from a global banking trade group showed on Tuesday.

Non-resident investors added a net USD 21.7 billion to emerging market portfolios last month, a sharp decline from January’s record USD 100.5 billion and below the USD 45.5 billion recorded in February last year, the Institute of International Finance said.

The slowdown followed an unusually strong start to the year rather than a more fundamental shift in investor appetite, said Jonathan Fortun, senior economist at the IIF.

“The month-to-month slowdown is … best read as a normalization after an outlier January print,” he said in the IIF report.

Foreign investors allocated a net USD 14.3 billion to emerging market debt last month, while equity inflows slowed to USD 7.4 billion from USD 28.0 billion in January.

The February data predates a deterioration in global risk sentiment triggered by the US-Israeli war on Iran whose spread in the Middle East has prompted a retreat from emerging markets and other risk assets in the first days of March.

South Korea, which the IIF highlighted as an area of weakness in February flows, has since seen particularly steep equity losses even though the benchmark KOSPI remains strong on a year-to-date basis.

ASIA LEADS FEBRUARY DEBT INFLOWS

Debt inflows in February were spread across regions. Asia drew USD 5.9 billion, followed by Latin America with USD 4.3 billion, emerging Europe with USD 2.6 billion and the Middle East and North Africa with USD 1.5 billion.

China’s debt market attracted USD 400 million in February after stronger inflows in January, while emerging markets outside China received USD 13.8 billion.

The IIF said that pattern suggests investors remain interested in higher-yielding markets outside China, even as conditions in global markets become less predictable.

Equity flows also stayed positive last month, although the regional picture was uneven.

China stocks sucked in USD 5.2 billion while emerging markets outside China added USD 2.2 billion. Across regions, Latin America led allocations with USD 6.9 billion, while emerging Europe, the Middle East, and North Africa also saw smaller inflows.

Asia equities overall recorded net outflows as selling in markets such as South Korea offset inflows elsewhere.

“In this environment, flows are likely to remain broadly resilient but increasingly differentiated, with balance sheet strength, policy credibility, and market depth playing a growing role in shaping investor allocation decisions,” Fortun said.

Local currency bond markets continued to attract buyers as investors sought relatively high yields in countries where exchange rates and policy settings have remained broadly stable. A weaker dollar earlier in the year has also helped support returns across both local- and foreign-currency debt.

Even with steady inflows, February also showed that investors remain selective in how they allocate capital across emerging markets, the IIF said.

Late last month, Indonesia experienced a sharp bout of outflows from both equities and sovereign bonds after domestic market concerns. The IIF said the episode remained localized and did not spread across other emerging market assets.

(Reporting by Rodrigo Campos in New York, editing by Karin Strohecker and Alexander Smith)

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