Asian bonds experienced their largest foreign outflows in four years during March. Investors pulled a net $7.57 billion from regional fixed-income assets in South Korea, Thailand, Malaysia, India, and Indonesia. This significant outflow, the largest since March 2022, is attributed to escalating inflation concerns fueled by disruptions to oil and gas supplies stemming from the Middle East conflict.
"Investors are paring bond positions on worries that the inflation outlook is reducing the attractiveness of holding long-duration assets," stated Khoon Goh, head of Asia research at ANZ. Elevated energy prices and potential constraints in the Strait of Hormuz increase the risk of embedded inflation across various goods and services, a sentiment echoed by Federal Reserve Governor Christopher Waller.
South Korean bonds saw a substantial net outflow of $7.25 billion, as rising oil price worries overshadowed optimism about their inclusion in the FTSE Russell's World Government Bond Index. Foreign investors also divested $1.8 billion from Indonesian bonds and $708 million from Thai bonds. Conversely, Malaysian and Indian bonds attracted cross-border inflows of $1.52 billion and $671 million, respectively.