Foreign Investors Return to Asian Bonds in August After Three-Month Pause

Asian bonds recorded their first foreign inflows in three months during August. Investors were encouraged by expectations that the U.S. Federal Reserve would cut interest rates to support a weakening labor market, boosting demand for higher-yielding emerging market assets.

Foreign Inflows Resume

Data from regulators and bond market associations in India, Indonesia, Thailand, Malaysia, and South Korea showed that foreign investors purchased a net $311 million in Asian bonds last month. This marked the first monthly net inflow since May.

Fed Cuts Rates to Ease Labor Market Pressures

The Federal Reserve cut interest rates on Wednesday for the first time since December. Officials cited rising risks to the U.S. labor market, including higher unemployment, reduced work hours, and other signs of slowdown. The Fed also signaled that more rate cuts are likely in the months ahead.

Khoon Goh, head of Asia research at ANZ, projected a total rate cut of 125 basis points by March 2026. “A more accommodative U.S. monetary policy stance should support Asia ex-China currencies and asset markets,” he explained.

Country-Wise Bond Flows

Foreign investors bought $773 million worth of Indian bonds and $721 million of Malaysian debt instruments in August, breaking a two-month streak of net selling in both markets.

However, South Korea, Indonesia, and Thailand saw continued outflows. Foreign investors pulled $447 million from South Korean bonds, $400 million from Indonesian debt, and $337 million from Thai bonds during the same period.