In May, Asian bonds experienced a significant surge in foreign inflows, reaching their highest monthly level in approximately two years. This increase was primarily driven by the expectation of less aggressive monetary tightening measures from the U.S. Federal Reserve.
According to data from regulatory authorities and bond market associations, foreign investors acquired a net total of $10.1 billion worth of bonds in India, Indonesia, Malaysia, South Korea, and Thailand. This represents the largest monthly bond purchases since June 2021.
Market analysts have also observed that investors were motivated by indications that regional economies had reached their peak inflation levels. This development led to expectations of interest rate reductions by central banks, aimed at stimulating economic growth. The prospect of these interest rate cuts further bolstered investor confidence in Asian bonds.
Overall, the surge in foreign inflows to Asian bonds during May can be attributed to a combination of optimistic market sentiment surrounding the U.S. Federal Reserve's monetary policy outlook, signs of easing inflationary pressures in the region, and the anticipated measures by central banks to support economic expansion.