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Foreign investors significantly reduced their holdings in Asian bonds last month, as traders reassessed their expectations of a U.S. Federal Reserve rate cut amid persistent inflationary pressures.
Additionally, caution over national elections in South Korea and India also affected capital flows into the region.
Foreign investors offloaded last month a net $4.7 billion worth of bonds in South Korea, Indonesia, Thailand, Malaysia, and India, breaking a four-month-long purchasing streak, data from regulatory authorities and bond market associations showed.
Investors cut bets that the Fed would start easing rates in June as inflation emerged to be stickier than previously expected. Recent data showed U.S. consumer prices increased more than expected for a third straight month in March.
Market analysts now anticipate that the rate-easing cycle is likely to start in September.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, hit a five-month high of 5.012 last week.
South Korean bonds lost a net $4.35 billion in foreign outflows last month, the most in a month since January 2023.
According to Khoon Goh, ANZ’s head of Asia Research, the dual effect of rising U.S. yields and national legislative elections likely drove outflows from South Korean bonds.
Indonesian bonds suffered about $2 trillion worth of net selling by foreigners, the largest monthly outflow since June 2022 amid a drop in the rupiah.
Thai bonds also saw continued foreign selling, with outflows totalling about $342 million, marking the fourth consecutive month of outflows.
Indian bonds, meanwhile, attracted foreign capital for a twelfth successive month, totalling a net $1.64 billion.
Cross-border investors also purchased Malaysian bonds of about $353 million last month.
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