Asian bonds draw hefty inflows on US rate cut hopes, strong exports

Asian bonds attracted their largest monthly inflow in three months in February, helped by expectations that the U.S. Federal Reserve would cut rates later this year, and also boosted by the region’s strong exports, Reuters reported.

Foreign investors accumulated a net $4.41 billion of bonds in India, South Korea, Malaysia, Indonesia and Thailand last month, marking their fourth successive month of net buying, data from regulatory authorities and bond market associations showed.

Demand for Indian bonds soared with a net investment of $2.7 billion, the highest monthly figure since July 2017, buoyed by their impending inclusion in JP Morgan’s emerging market debt index.

“Rupee sovereign bonds are poised for further gains on strong foreign inflows, largely frontrunning the upcoming bond index inclusion,” Radhika Rao, a senior economist at DBS Bank said in a note.

“JP Morgan is due to start the inclusion by June 2024 and extend it over 10 months, with 1% increments on its index weighting, until it likely reaches 10%,” she said.

South Korean bonds attracted a significant $2.59 billion in February, their largest inflow in nine months, bolstered by a surge in exports, especially in the semiconductor industry, which is anticipated to drive economic growth this year.

Thai, Malaysian, and Indonesian bonds witnessed net foreign outflows of about $532 million, $249 million, and $100 million, respectively, last month.

U.S. central bankers, unlikely to cut borrowing costs this week, might reveal new economic projections that potentially indicate a more gradual approach to interest rate cuts and a later initiation of policy easing than previously forecasted.

“We expect prospects of Fed easing, Asia’s improving export outlook and favourable growth-inflation mix will attract inflows into the region,” Khoon Goh, head of Asia Research at ANZ, said.