By Gaurav Dogra

(Reuters) – In November Asian bonds saw their smallest foreign inflows of this year, due to rising expectations of a faster unwinding stimulus measures by U.S. Federal Reserve as well as caution regarding economic uncertainty from Omicron coronavirus variant.

International investors made $1.22 Billion in combined purchases of South Korean, Thai Thai, Indian and Indonesian bonds. It was the lowest net buy since December 2020 according to data from bond market associations and regulatory agencies.

(Graphic on, Foreign flows into Asian bonds: https://fingfx.thomsonreuters.com/gfx/mkt/klvyknbrlvg/Foreign%20flows%20into%20Asian%20bonds.jpg)

Eugene Leow, a DBS Bank strategist said that there is an increasing trend towards caution in the face of Fed tightening as well Omicron risk. This was evident during late November.

DBS’s Leow said that previous Fed tightening episodes had put pressure on EM, and that investors are likely to be similarly cautious in this round.

South Korean bonds have received $2.79 Billion, the 11th consecutive month for foreign inflows in November.

South Korean bonds are bringing in $52.26 Billion in foreign capital this year. That boosted cross-border investor’s cumulative holdings of the bonds to 9.3% by November. It is the largest increase since at most 2014.

Thai bonds have secured $1.3 billion in inflows, up from $480million in the preceding month.

Indian bonds have attracted $131million after facing outflows in the past month.

Meanwhile, overseas investors sold Indonesian bonds – for a third straight month – worth $2.15 billion, trimming their holdings in Indonesian bonds to 20.55%, the lowest since at least 2014.

Cross-border outflows totalling $848 Million were also recorded for Malaysian bonds, which marked the first outsiders’ net sale in just four months.

In an effort to reduce high rates of inflation, the Fed will likely signal on Wednesday a more rapid wind-down its $120 billion per month bond buying program. It could also move closer to raising interest rate.

The outlook for portfolio flows is still mixed. Increasing vaccination rates, rising mobility levels and a rebound in economic activity will both support this,” KhoonGoh, Asia Research Head at ANZ Bank.

“However, potentially faster tapering and earlier-than-expected U.S. rate hikes, and uncertainty caused by the Omicron variant, pose key downside risks.”

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