Foreign Investors Drive Surge in Asian Bond Buys Amid US Rate Cut Signals

Foreign investors ramp up bond purchases in key Asian markets in November, fueled by U.S. rate cut expectations and a drop in Treasury yields.

Foreign investors have significantly increased their bond purchases in key Asian markets in November, driven by a notable drop in U.S. Treasury yields and a shift in expectations for potential Federal Reserve rate cuts. According to data from regulatory authorities and bond market associations, foreign investors made their largest monthly net purchase since May, buying a total of $6.36 billion in South Korean, Indian, Malaysian, Indonesian, and Thai bonds last month.

The surge in Asian bond purchases in November coincided with a sharp fall in U.S. Treasury yields, following less hawkish remarks from Federal Reserve officials and cooler-than-expected October inflation data, as markets began to anticipate potential Fed rate cuts as early as March 2024. Indian bonds attracted $1.78 billion in foreign capital, marking the highest inflow since August 2017, spurred by optimistic economic growth forecasts and the inclusion of local bonds in JP Morgan's emerging market debt index next year. South Korean bonds saw the first net purchase in four months, amounting to $1.72 billion, bolstered by improving exports that signalled economic resilience. South Korea’s exports exceeded expectations in November, with chip sales rising for the first time in 16 months amid a global demand uptick. Exports from other regional economies, including China and Taiwan, also expanded last month, fuelling hopes for an economic rebound. Indonesian, Malaysian, and Thai bonds also saw significant foreign inflows, attracting $1.5 billion, $1.16 billion and $202 million, respectively.

The increase in foreign bond purchases in key Asian markets in November reflects a shift in investor sentiment driven by a drop in U.S. Treasury yields and a change in expectations for potential Federal Reserve rate cuts. The surge in bond purchases, particularly in Indian and South Korean markets, is indicative of growing confidence in the economic outlook for the region.