Asian bonds gain solid inflows on rate cut hopes amid US inflation concerns

Asian bonds attracted foreign inflows for a third successive month in January propelled by expectations of rate cuts in major economies.
 

Yet, recent data indicating persistent U.S. inflation and a resultant surge in Treasury yields could impact future demand for emerging market (EM) assets, analysts said.
 

Foreign investors poured in a net $3.11 billion into bonds in India, South Korea, Malaysia, Indonesia, and Thailand last month, a 20% jump over $2.58 billion worth of net acquisitions in the previous month, data from regulatory authorities and bond market associations showed.
 

India led the way with a robust influx of $2.39 billion into its bonds, the highest since August 2017, fueled by anticipation of its inclusion in JP Morgan's emerging market debt index this year.
 

Indonesian bonds also saw a notable uptick, receiving $1.4 billion from overseas investors, continuing a three-month trend of positive inflows. South Korean bonds attracted $607 million in foreign capital.
 

However, analysts warn of potential headwinds.
 

The U.S. dollar index has strengthened recently, and U.S.
 

Treasury yields hit a monthly peak of 4.72%, reflecting a shift in expectations for Federal Reserve rate cuts and reaction to persistent inflation concerns.
 

Despite the strong inflows into the region, the regional currencies suffered their worst January performance since 2009, said Khoon Goh, head of Asia Research at ANZ.
 

"Stronger USD and higher US bond yields may dampen flows into the region in the near term," he said.
 

Malaysian and Thai bonds meanwhile, witnessed foreign outflows for a third consecutive month in January as they lost $1.08 billion and $201 million respectively in outflows.