Foreign buying of emerging Asian bonds in 2018 fell sharply

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(Jan 18): Foreign purchases of bonds issued in five Asian markets in 2018 fell sharply from the previous year, data shows, as the Sino-US trade war and higher US yields prompted many investors to shy away from riskier assets.

Data from central banks and bond market associations showed overseas investors bought a net US$10.02 billion in Indonesian, Thai, South Korean, Indian and Malaysian bonds in 2018, compared with US$49 billion in 2017.

In December, South Korea and Indian bonds had the biggest inflows among the five countries, of US$1.33 billion and US$676 million respectively.

However, cumulative flows for India and Malaysian bonds in full-year 2018 were negative, the data showed.

US Treasury yields surged last year on the back of four rate hikes by the Federal Reserve, narrowing the interest rate gap between some high yielding Asian bonds and US ones.

Khoon Goh, head of Asia research at ANZ, said US-China trade tensions, Fed rate hikes, wider emerging market concerns, a mid-year spike in oil prices and concerns over global growth were all headwinds impacting flows into Asia bonds last year.

"How these and other developments play out in 2019 will be key to whether portfolio inflows will return," he said.