Last month, Asian bonds saw their largest monthly foreign outflow in two years, driven down by a strengthening dollar and higher interest rates abroad, and analysts expect this trend to continue in the months ahead.
Last month, foreign investors sold a total of $7.87 billion in South Korean, Thai, Indian, Indonesian, and Malaysian bonds, the first net selling since May 2020, according to statistics from regulatory authorities and bond market groups.
Last month, Asian bonds were impacted by an ongoing rise in dollar rates due to a tight Federal Reserve, according to Eugene Leow, a strategist at DBS Bank.
“There is collateral damage to EM/Asia government bonds now that US rates are no longer low in absolute terms,” he said.
On predictions of two half-point rate hikes from the Federal Reserve this year, the US dollar index gained 1.7 percent last month, registering its highest gain in four months.
Last month, the Federal Reserve hiked interest rates for the first time in three years.
Last month, foreigners sold $3.37 billion in Indonesian notes and $3.08 billion in Thai bonds.
Outflows of $958 million and $741 million were seen in Malaysian and Indian bonds, respectively.
Meanwhile, inflows into South Korean bonds fell to $279 million, the lowest level since December 2020.
South Korea has hiked interest rates three times since August of last year, and some analysts anticipate more tightening measures from Asian central banks this year to stem outflows.
“Asian central banks are increasingly considering rate hikes as inflationary pressures rise as a result of rising commodity prices,” said Khoon Goh, head of Asia Research at ANZ Bank.
“This, combined with the Fed’s impending quantitative tightening, will keep regional portfolio movements turbulent in the near future.”
The governor of Taiwan’s central bank said last month that the country’s monetary policy will tighten this year.