Foreigners dump Asian bonds in June on rising US yields

Overseas investors disposed of a combined net total of $5.08 billion in Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking the biggest monthly outflow since March, regulatory data and bond market associations showed.

The emerging Asia bonds were hit by a surge in US yields and a jump in the US dollar, making the riskier assets less attractive.

As major central banks are looking to hike their interest rates in their efforts to combat soaring inflation levels, further outflows can be expected from the regional markets, analysts said.

Fears over a global economic recession have accelerated in recent weeks, as economists expect the higher interest rates and inflation levels would lead to slower consumption and sluggish business activity around the world.

“From the perspective of Asia bonds, a US recession would be a massive headwind,” said Duncan Tan, a strategist at DBS Bank in a research note last month. The US dollar index jumped 2.88 per cent last month and hit over a 19-year high, boosted by the hawkish Federal Reserve and safe heaven demand amid economic concerns.

Foreigners sold Indonesian bonds worth $2.13 billion, trimming down their cumulative holdings in local currency government bonds to 15.65 per cent at end-June, the lowest since at least 2014.