By Gaurav Dogra

(Reuters) – Foreign outflows were observed in Emerging Asia ex China bonds for the second consecutive month of April. This was due to increased yields from the United States and concern over China’s strict coronavirus restrictions.

According to data from bond market associations and regulatory agencies, overseas investors sold bonds in South Korea, Thailand, Indonesian, Indian, Indonesian, and Malaysian last month for a total net amount of $2.35 Billion. According to data, it was the second consecutive month of selling Asian bonds by foreigners.

(Graphic: https://fingfx.thomsonreuters.com/gfx/mkt/znpneoedevl/Monthly%20foreign%20investment%20flows%20Asian%20bonds.jpg)

The yields on 10-year U.S. bonds has risen dramatically in the last month due to expectations that the Federal Reserve will act quickly to control inflation.

Fed raised its overnight benchmark interest rate 50 basis points and said it will begin trimming its balance sheets next month in an effort to combat unabated inflation.

Jennifer Kusuma (an ANZ senior rates strategist) stated that the major drivers for the outflows were due to the Ukraine conflict and a more hawkish U.S. Federal Reserve. This was in response to sharply lower global risk sentiment and a higher USD cost per fund.

Although we expect the outflows to be continued from the emerging Asia area, many economies have solid fundamentals that can withstand volatility and large FX reserves.

Indonesian bonds sold to foreigners were worth $1.41 Billion, and Indian and Malaysian bond outflows totaled $579 Million and $503 Million, respectively.

In April, India and Indonesia were hit hard by rising consumer prices. This was due to higher energy and food prices. It raised expectations that the central banks of these countries would raise their interest rates aggressively in order to reduce prices.

Meanwhile, cross-border monthly purchases of South Korean bonds fell to $29 million for the sixteenth month.

(Graphic: https://fingfx.thomsonreuters.com/gfx/mkt/akvezrzgopr/Foreign%20investors%20holdings%20in%20Asian%20bonds.jpg)

After net sales last month of $3.08 trillion, overseas investors purchased $112 million worth Thai bonds.

Yu Fu, an investment specialist at BNP Paribas for emerging markets debt (OTC) Asset Management stated: “We are more worried about countries that have low yields like Korea or Thailand.”

Jennifer Kusuma (an ANZ senior rate strategist) stated that “Support from local investor also weakened” as domestic inflationary pressures increased. This opened up upside risks surrounding domestic monetary policies rates.