Foreign investments in Asian bonds hit a near-10 year high in May, driven by a weaker dollar, concerns over U.S. fiscal risks, and expectations of rate cuts in regional economies.
Foreign investors bought Asian bonds worth $15.29 billion on a net basis in May, the most for a month since at least January 2016, according to data from regulatory authorities and bond market associations in South Korea, India, Indonesia, Thailand and Malaysia.
Last month, U.S. 30-year Treasury yields hit a 19-month high of 5.161 per cent amid concerns over elevated debt levels, while Moody’s downgraded the U.S. sovereign credit rating by one notch to “Aa1” on worries about a widening fiscal deficit and rising borrowing costs.
“Concerns over U.S. fiscal policy may have seen a diversification of investor flows into Asian assets,” said Khoon Goh, head of Asia research at ANZ.
“Global government yield curves steepened in May, mostly due to long-end yields rising. However, the Asian debt market was not affected by the sell-off in U.S. Treasuries,” Goh added.
A weaker dollar is also supporting Asian bonds as stronger local currencies potentially give central banks room to cut rates to bolster growth without risking capital outflows.
The Reserve Bank of India (RBI) cut its key repo rate by a larger-than-expected 50 basis points earlier this month, while central banks in South Korea and Indonesia lowered their policy rates.
South Korean bonds recorded net foreign inflows of $8.2 billion last month, the highest since May 2023.
Foreigners also snapped up Malaysian, Indian and Indonesian bonds worth a net $3.15 billion, $2.29 billion and $1.7 billion, respectively.
Thai bonds, meanwhile, recorded $54 million worth of cross-border outflows.
