In July, overseas investors bought bonds from emerging Asian markets, excluding China, hoping the United States might slow down the pace of interest rate hikes as the economy feels the heat, while concerns over higher inflation levels subsided.
Foreigners moved a net worth of $2.39 billion into Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking their first month as net buyers since February, according to regulatory and bond market associations' data.
Duncan Tan, a strategist at DBS Bank, said investors are adding back exposures to Asia bonds.
Pressures have recently been easing due to market expectations of a dovish Fed pivot and an attendant pullback in the US Dollar, he added, referring to speculation that the U.S. Federal ReserveFederal Reserve might relax its pace of monetary policy tightening.
The U.S. economy contracted last month as business spending fell and consumer spending fell to a two year low, according to data released last month.
Investors scaled back expectations for the size of a Federal Reserve rate hike next month, as U.S. inflation slowed in July.
Foreigners bought South Korean bonds worth $3.56 billion last month in their biggest net buying since December, while Indonesian debt attracted just $79 million after four months of outflows in a row.
South Korea's economic growth picked up unexpectedly in the second quarter, boosted by strong consumption.
In Malaysia, foreigners sold $794 million worth of bonds, while India and Thailand had outflows of $258 million and $201 million.
Asian bonds could draw inflows as the market shifts from inflation concerns to worries over growth, analysts said.
We expect large foreign bond outflows of 1 H to reverse into small inflows in 2 H DBS's Tan said.