Foreign money flows into Asian bonds turn positive in March

Foreigners turned net buyers of Asian bonds in March, buoyed by regional currencies' rise against the dollar, but inflows were restrained by concerns over escalating trade tensions between China and the United States. Data from central bank and bond market associations showed foreigners bought a total of $322 million in India, Indonesia, Thailand, South Korea and Malaysian bonds last month, compared with sales of about $700 million in February.
"Ongoing trade tensions, increased geopolitical tensions over Syria and recent PMI data suggesting some easing in growth are key risks to the flow picture in the region," said Khoon Goh, head of Asia research at ANZ Banking Group. "While we still expect overall flows to remain positive for the year, it is set to be more volatile." South Korean bonds led the regional flows, attracting foreign money worth about $1 billion in March, largely helped by the local currency's gains against the greenback.
The South Korean won climbed 1.8 percent in the last month, while the Malaysian ringgit rose 1.4 percent. Indonesian bonds received inflows worth $769 million due to some optimism ahead of its inclusion in the Bloomberg Barclays Global Aggregate index from June. On the other hand, Indian bonds saw outflows of more than $1 billion in the last month as the foreign investment limit neared exhaustion.
However, India's central bank eased the limits on debt purchases to 5.5 percent of total outstanding securities for this fiscal year, in a move that is likely to boost its bond markets. "The increase in foreign portfolio investment limits announced by the RBI in early April is welcome, though the recent rise in oil prices could see near-term outflows on concerns over the impact on India's inflation and current account," said ANZ's Goh.
Overall, foreign inflows into Asian bonds were also helped by a drop in US bond yields, especially of long-tenor bonds in the last month. The 10-year US Treasury yield fell 12.4 basis points in March. "We believe longer-end US dynamics are much more important for Asia rates performance," said Nomura in a report.
The brokerage said it doesn't expect the current global rate environment to affect Asian bond markets in the near term as the normalization of the Fed and ECB is set to continue gradually.