Foreign investors turned net sellers of Asian bonds in August for the first time in five months, recording $457 million in outflows across South Korea, Malaysia, India, Indonesia and Thailand. According to data from regulators and bond market associations cited by Reuters, this marked the first monthly net selling since March. The selling was driven by a global bond selloff and expectations of tighter monetary policy in major economies, which reduced demand for regional debt. The broader environment has remained challenging for emerging-market bonds as global yields rise and central banks continue to focus on inflation risks.
South Korea recorded the largest outflow among the five markets, with foreign investors selling about $5.4 billion of bonds following four consecutive months of purchases. As reported by Reuters, the selling may have partly reflected the unwinding of positions built ahead of South Korea's inclusion in the FTSE World Government Bond Index, which had supported sustained inflows earlier in the year. Thailand also recorded a third consecutive month of foreign outflows, with investors selling a net $77 million of bonds.
India also saw foreign investors sell $232 million of bonds after two straight months of net purchases, according to Reuters. The selling was partly offset by strong inflows into Malaysia and Indonesia, where foreign investors bought $3.95 billion of Malaysian bonds and $1.3 billion of Indonesian debt during the month. The divergent flows indicated that investors remained selective within Asian debt markets, with capital continuing to move towards markets offering relatively attractive yields and stable domestic fundamentals.
Global bond markets came under pressure during August, with rising government debt and persistent inflation concerns pushing long-term borrowing costs higher. Investors also reassessed the outlook for interest rates as major central banks signalled that monetary policy could remain restrictive for longer. Expectations of prolonged monetary tightening, coupled with concerns over increased government bond issuance in some developed markets, encouraged investors to reduce exposure to emerging-market debt. The U.S. central bank on Wednesday raised interest rates for the first time since July 2023, with the 30-year fixed mortgage rate averaging 6.76% last week, the highest level in more than a year.
The broader environment has remained challenging for emerging-market bonds as global yields rise and central banks continue to focus on inflation risks. In India, the Reserve Bank has recently stepped up liquidity-absorption measures, including government bond sales, amid elevated surplus liquidity in the banking system. More recently, global bond markets have remained sensitive to inflation and energy-price risks, with the U.S. 10-year Treasury yield having moved above 5% during the week's selloff. A ballooning national debt has also driven yields higher, with the benchmark 10-year Treasury bond yield hovering around 5.0%.
