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Asian bonds see strong inflows due to US interest rate forecast and strong exports

Asian bonds see strong inflows due to US interest rate forecast and strong exports

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(Reuters) – Foreign investors bought net Asian bonds for the third month in a row in July, driven by strong regional export growth and expectations of a U.S. Federal Reserve interest rate cut in September.

Foreign investors bought bonds in Indonesia, India, Malaysia, South Korea and Thailand worth a net $7.91 billion in July, according to data from regulators and bond market associations, up from about $3.03 billion in net purchases the previous month.

“Macroeconomic fundamentals in Asia remain positive. This should lead to further capital inflows, especially with the US Federal Reserve set to cut interest rates soon,” said Khoon Goh, head of Asia research at ANZ.

Regional economies including China, South Korea and Taiwan reportedly recorded higher export volumes in July.

Indonesian bonds attracted a remarkable $3 billion in July, recording the third consecutive month of net purchases, largely driven by foreign investment in Bank Indonesia Rupiah Securities (SRBI).

Demand for Indian bonds soared, and after their inclusion in JP Morgan’s emerging market bond index on June 28, they reached a net investment value of $2.68 billion, the highest in five months.

Indian bonds are expected to see monthly inflows of about $2 billion until they reach a weight of around 10 percent in JPMorgan’s index in March 2025.

In addition, foreign investors invested $1.75 billion and $749 million in Malaysian and Thai bonds, respectively, while they withdrew a net $270 million from South Korean bonds.

Financial markets experienced increased volatility in early August after weaker-than-expected U.S. labor market reports and disappointing manufacturing data increased concerns about an economic slowdown.

However, a weekly employment report showed a decline in jobless claims last week.

“Last week’s better-than-expected US unemployment figures helped to ease market concerns. We believe recession fears in the US are overdone,” said ANZ’s Goh.

“We expect the combination of stable labor market statistics and easing inflation to maintain hopes of a soft landing in the US, which in turn will lead to portfolio inflows to Asia.”

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Sherry Jacob-Phillips)

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