Graphic: Foreign Inflows Into Asian Bonds Surge On Higher Yields And Recovery Hope

Foreign investors stepped up buying of Asian bonds in October, bolstered by higher yields and hopes of a faster economic recovery compared with other parts of the world.

Asian local currency and corporate bonds received a combined total inflow of $3.29 billion last month, marking a sixth straight month of inflow, data from regional central banks and bond market associations in Indonesia, Malaysia, Thailand, South Korea and India showed.

“We expect investor focus to return to Asia’s improving fundamentals. The region’s exports have recovered fully to pre-pandemic levels by September and continue to grow,” said Khoon Goh, head of Asia Research at ANZ.

“Given ample global liquidity, foreign inflows into the region should see a pick-up,” he said.

The prospect of a new U.S. administration led by Joe Biden have also boosted risk sentiment and bolstered flows into Asian bonds in the past few weeks, analysts said.

Foreign flows into Asian bonds https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmjdzepr/Foreign%20flows%20into%20Asian%20bonds.jpg

Malaysian and Indonesian bonds topped the region with inflows of $1.9 billion and $1.1 billion respectively, thanks to their higher real yields. Real yields are nominal yields adjusted for inflation.

South Korea and Malaysia are the only bond markets in the region that have seen net inflows for this year, the data showed.

“Malaysia’s real yield is keeping MGS (Malaysian government securities) attractive,” MUFG Bank said in a report.

“Currently at 3.15%, its real yield has been the highest amongst Asia ex-Japan since March.”

Real yield of Asian bonds https://fingfx.thomsonreuters.com/gfx/mkt/dgkvljrnnvb/Real%20yield%20of%20Asian%20bonds.jpg

At the end of October, foreign holdings in Malaysian debt securities rose to 26.4%, the highest since January.

India and South Korean bonds also attracted about $226 million and $183 million worth of foreign money, the data showed.

However, MUFG said the prospects for inflows into India’s bond market remain weak due to negative real yields and spike in government bond issuances in the second half of this fiscal year.

Foreign investors’ holdings in Asian bonds https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwlqqwpw/Foreign%20investors’%20holdings%20in%20Asian%20bonds.jpg

On the other hand, Thai bonds faced an outflow of $148 million in October, compared with an inflow of $800 million in the previous month.

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