Asian bonds draw hefty inflows on US rate cut hopes, strong exports By Reuters

(Reuters) – Asian bonds attracted their largest monthly inflow in three months in February, helped by expectations that the U.S. Federal Reserve would cut rates later this year, and also boosted by the region’s strong exports.

Foreign investors accumulated a net $4.41 billion of bonds in India, South Korea, Malaysia, Indonesia and Thailand last month, marking their fourth successive month of net buying, data from regulatory authorities and bond market associations showed.

Demand for Indian bonds soared with a net investment of $2.7 billion, the highest monthly figure since July 2017, buoyed by their impending inclusion in JP Morgan’s emerging market debt index.

“Rupee sovereign bonds are poised for further gains on strong foreign inflows, largely frontrunning the upcoming bond index inclusion,” Radhika Rao, a senior economist at DBS Bank said in a note.

“JP Morgan is due to start the inclusion by June 2024, and extend over 10 months, with 1% increments on its index weighting, till it likely reaches 10%,” she said.

South Korean bonds attracted a significant $2.59 billion in February, their largest inflow in nine months, bolstered by a surge in exports, especially in the semiconductor industry, which is anticipated to drive economic growth this year.

Thai, Malaysian and Indonesian bonds witnessed foreign outflows of about $532 million, $249 million and $100 million, respectively, on a net basis last month.

U.S. central bankers, unlikely to cut borrowing costs this week, might reveal new economic projections that potentially indicate a more gradual approach to interest rate cuts and a later initiation of policy easing than previously forecasted.

“We expect prospects of Fed easing, Asia’s improving export outlook and favourable growth-inflation mix will attract inflows into the region,” Khoon Goh, head of Asia Research at ANZ, said.