Foreigners snap up Asian bonds in August after two-month hiatus

Asian bonds attracted their first monthly foreign inflow in three months in August, as expectations of US Federal Reserve rate cuts to support a cooling labour market boosted demand for higher-yielding emerging markets.

Non-native investors bought Asian bonds worth a net $311 million last month, their first monthly net purchase since May, data from regulatory authorities and bond market associations in India, Indonesia, Thailand, Malaysia and South Korea showed.

The Fed cut interest rates on Wednesday for the first time since December, citing rising risks to the labor market, and signaled further reductions ahead as unemployment edges higher, work hours shrink, and other signs of weakness emerge.

“We expect a cumulative rate cut of 125bp, taking the Fed funds rate to 3.25% by March 2026,” said Khoon Goh, head of Asia research at ANZ.

“A more accommodative US monetary policy stance should support Asia ex-China currencies and asset markets,” Goh said.

Investors bought Indian bonds of $773 million and Malaysian debt instruments of $721 million last month, snapping a two-month selling trend in both these markets.

South Korean, Indonesian and Thai bonds, however, saw foreign outflows of $447 million, $400 million and $337 million, respectively, last month.