Foreign investors cut Asian govt bond holdings

Foreign investors have cut holdings in most emerging Asian government bonds so far this month on expectations that US interest rates will rise in December and that other major central banks will not ease further.

South Korea, India and Thailand have suffered outflows so far.

"The global environment for bonds has become less favourable with major central banks contemplating reducing stimuli," said Mr Eugene Leow, interest rate strategist for DBS Bank.

The US Federal Reserve is expected to raise interest rates in December, as three months of slower employment growth is not considered enough to stop it from moving.

Also weighing on emerging Asian debt are perceptions that other major central banks are unlikely to ease further as well as higher oil prices, which have reduced concerns about inflation being too low.

Foreign investors sold a combined net 1.7 trillion won (S$2.09 billion) worth of South Korean bonds in the first 10 days of the month, preliminary data from the country's Financial Supervisory Service showed.

"Short-dated notes are not attractive, given low chances of a rate cut in the near term, although investors extended duration, indicating their sentiment stays bullish," said Mr Shin Dong-su, a fixed-income analyst at Eugene Investment & Securities in Seoul.

South Korea's central bank is not expected to lower rates at a policy meeting tomorrow.

In India, foreign investors booked profits by selling more than US$600 million (S$827 million) worth of domestic bonds this month after buying US$1.5 billion of them last month, before interest rates were cut at a policy meeting on Oct 4.

Foreign investors cut Thai bond holdings by 9.2 billion baht (S$360 million) this month, following inflows of 15.3 billion baht last month, according to calculations based on Thai Bond Market Association data.

Malaysia saw bond outflows of RM1.4 billion (S$463 million) in September after three months of inflows, central bank data showed.

Foreign holdings of Indonesian bonds, by contrast, have hardly changed this month - they attracted 16.9 trillion rupiah (S$1.78 billion) of inflows last month, nearly double the August level.


A version of this article appeared in the print edition of The Straits Times on October 12, 2016, with the headline 'Foreign investors cut Asian govt bond holdings'. Print Edition | Subscribe