Asian bonds record biggest monthly foreign outflow since March 2020

Foreign investors withdrew a record $8.21 billion in Asian bonds during September, marking the largest monthly net outflow since March 2020, according to data from regulators and bond market bodies. The sell-off affected India, Indonesia, Malaysia, South Korea, and Thailand. This follows a $23.49 billion withdrawal from regional equities.

The global risk environment appears to be becoming more cautious as investors reduce exposure across both asset classes, driven by the Federal Reserve's tightening cycle and rising global bond yields. The surge in US Treasury yields by 53.5 basis points in September, reaching a 24-1/2-year high of 5.3645%, contributed to the outflows, with concerns over high oil prices fueling inflation and further rate hikes by major central banks.

The Federal Reserve's recent interest rate hike and indications of additional hikes ahead intensified the outflow pressure. South Korean bonds experienced the most significant outflow, with investors selling about $6.3 billion last month, their largest monthly net sales since March. Additional outflows were seen in Thai, Indian, Malaysian, and Indonesian bonds, amounting to $822 million, $548 million, $436 million, and $100 million, respectively.