Foreign investors are moving into Asian bond markets as U.S. debt loses appeal, with Malaysia emerging as the top destination.
Data from regional authorities shows $34 billion flowed into Asian debt in the first five months of the year, the highest since at least 2016.
Malaysia recorded the largest monthly foreign inflow since 2014 last month, totalling around $3.15 billion. India and Indonesia also attracted significant inflows. The shift comes as Asian economies offer a rare combination of currency strength and falling interest rates, unlike the U.S., Europe, or Japan, where high debt levels and weakening currencies are reducing bond value.
A weaker dollar and the prospect of U.S. rate cuts have increased the attractiveness of locking in higher yields across Asia. Many investors expect bond prices in the region to rise as local interest rates begin to fall, boosting the value of their holdings.
Investors are especially interested in countries like Thailand, the Philippines, Indonesia, India, and Malaysia. In India, a series of rate cuts has sparked strong demand for bonds.
Malaysian bonds are viewed as offering more value than Thai or Indonesian ones, with its central bank yet to begin cutting rates and a strong local currency supporting returns.
Thailand saw outflows of $53.6 million in May as its bond yields remain low and the central bank signalled limited room for further rate cuts. Indonesia’s bonds offer high yields compared to U.S. Treasuries but face concerns over spending and political stability.
In Malaysia, expectations of a rate cut in July have driven interest. Some investors believe the market is undervaluing the likelihood of a cut, creating opportunities for gains.
While liquidity remains a challenge in some Asian bond markets, analysts say low inflation and relatively low foreign ownership should help limit risks of volatility. Despite recent concerns, a steady return of foreign inflows could support broader stability and offer long-term value for investors.
