Foreign investors in January bought the highest amount of Asian bonds in more than four years, but there are doubts such purchases will continue in the coming months as rising global yields and volatility undermine demand for emerging Asian assets.
Foreigners bought Asian government and corporate bonds worth a net $9 billion in January, the highest since April 2013, data from central banks and bond market associations in India, Indonesia, Thailand, Malaysia and South Korea showed. They purchased a net $2.5 billion worth Indonesian bonds and $2.2 billion of South Korean bonds last month.
Analysts said the recent spike in market volatility could dampen foreign fund flows into the region's bond markets. The VIX index, Wall Street's "fear gauge" measure of market volatility, hit a 2-1/2-year high of 50.30 earlier this month, and was at 19.63 after declining over the last few sessions.
"There is no doubt that the surge in volatility we have seen over the early part of February has impacted bond flows," said Khoon Goh, head of Asia research at ANZ Banking Group (Singapore). Whether or not that will unwind, largely depends on how US markets continue to stabilise, Goh said.
A recent Maybank report showed foreigners sold about $300 million in Indonesian debt markets in the first half of February. Rising US Treasury yields have also stoked concerns of more foreign outflows, analysts said. US benchmark 10-year yields were hovering near four-year highs on Tuesday, while yields on 2-year notes touched more than nine-year peaks.
"If we start to see very sharp rises in global yields as we witnessed in the first month of 2018, then there is greater concern for emerging market bonds," said Chang Wei Liang, an FX strategist with Mizuho Bank. "It suggests there could be a repeat of taper tantrum Asia experienced in 2013, when US Treasury yields rose very sharply over a short period of time and that created a lot of volatility on outflows."
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