(Reuters) - Foreigners sold heavily in Asian bond markets in April as rising U.S. Treasury yields and a surging dollar prompted investors to dump regional assets.
Data from central banks and bond market associations showed foreigners sold a total of $3.9 billion in India, Indonesia, Thailand, South Korea and Malaysian bonds in the last month - the biggest since November 2016.
To view a graphic on Foreign investments in Asian bonds, click: reut.rs/2wNe1KW
Prakash Sakpal, ING Asia economist in Singapore, said expectations of more monetary tightening by major central banks this year were behind the accelerating foreign outflows from the region.
The U.S. 10-year Treasury yield breached the psychological level of 3 percent in April and is currently hovering near a seven-year peak of 3.095 percent.
The dollar rose on the back of surging yields and posted its biggest monthly gain in 17 months in April. The dollar index is up another 1.6 percent so far in May.
India and Indonesia - the two with high current account deficits in the region - saw the majority of foreign outflows in the region as worries over rising oil prices and inflation spurred the selloff.
Indian bonds weakened to a 35-month low this week and Indonesian bonds fell to a 14-month low earlier this month.
“We continue to expect flows to remain volatile especially as oil prices inch up further, casting a shadow on overall inflation and the current account balance,” said Khoon Goh, head of Asia research at ANZ Banking Group in a note.
South Korean bonds, on the other hand, witnessed inflows of $708 million on easing tensions in the Korean peninsula.
To view a graphic on Asia yields, click: reut.rs/2Io8yzC
Malaysian bonds saw foreign outflows of $1.2 billion in April, which was the biggest in 13 months, while Thai bonds experienced outflows of $928 million.
Analysts said Malaysian bond markets will face more uncertainty after last week’s stunning election defeat of the coalition that had ruled the country for six decades.
“We are concerned on the foreign fund flows movements into the bond market in the coming months following expectations for the US Fed’s rate hikes and heightened uncertainties as foreign funds digest the aftermath of the recent election results and potentially alter their portfolios,” said Kenanga in a report.
Asian currencies have fallen sharply over the past two months on surging foreign outflows from the region.
To view a graphic on Asian currencies performance, click: reut.rs/2ImwH9M
“It looks like we should continue to see these (outflows) for some time, until the expectations of Fed tightening settles,” said ING’s Sakpal.
Reporting by Patturaja Murugaboopathy and Gaurav Dogra; Additional Reporting by Harish Bhaskar; Editing by Kim Coghill